Riyadh unveiled a new oil output reduction on Sunday after a gathering of major producers focused on supporting prices despite concerns over a potential recession. The meeting involved the 13-member Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, and its 10 partners, including Russia, and featured intense negotiations.
Saudi Arabia announced a fresh cut of one million barrels per day (bpd) for July, with the possibility of extension, according to Energy Minister Prince Abdulaziz bin Salman. This followed the OPEC+ meeting at the group’s headquarters in Vienna. Analysts had anticipated that OPEC+ producers would maintain their existing policy, but indications emerged over the weekend that the 23 countries were considering deeper cuts.
In April, several OPEC+ members agreed to voluntarily reduce production by over one million bpd, a move that temporarily supported prices but failed to achieve lasting recovery. Oil producers are now dealing with declining prices and market volatility due to the Russian invasion of Ukraine, which has disrupted economies across the globe.
Since the April reductions were announced, oil prices have dropped around 10%, with Brent crude falling close to $70 a barrel, a level not seen since December 2021. Traders are concerned about a slump in demand as the United States faces inflation and higher interest rates, while China’s post-Covid recovery falters.
Russia’s Deputy Prime Minister Alexander Novak revealed that the current output cuts would be extended until the end of 2024 after lengthy examination. An OPEC+ table detailing required production levels for next year shows that the United Arab Emirates will be able to pump more than currently, while several countries, including Angola, the Republic of Congo, and Nigeria, have had their quotas reduced.
Bloomberg news agency reported that African countries had been hesitant to relinquish some of their quotas, despite not meeting them. “We have an agreement with which everyone is happy,” said the Republic of Congo’s hydrocarbons minister Bruno Jean-Richard Itoua after the meeting.
Sunday’s meeting was closely monitored, as Russia sought to maintain its production while Saudi Arabia aimed to increase prices to balance its budget, according to analysts.
“They have showed again they work together… At the end of the day, it’s about what they agree,” said UBS analyst Giovanni Staunovo, emphasising the importance of demonstrating unity.
While Russia relies on oil revenues to support its war in Ukraine and counteract the impact of Western sanctions on its economy, Saudi Arabia’s break-even price is currently estimated at around US$80 per barrel, according to Commerzbank analysts. In March 2020, the alliance nearly collapsed when Moscow refused to cut oil production even as the Covid pandemic caused prices to plummet.
After negotiations failed, Riyadh flooded the market by increasing exports to record levels before the two countries reached an agreement. When asked if there was any disagreement with Saudi Arabia this weekend, Novak replied, “No, we had no disagreements, it is a common decision.”
Analysts predict that oil prices will rise in the short term following Riyadh’s move. However, Tamas Varga, an analyst for PVM Energy, warned that “if protracted inflationary pressure leads to a downward revision in global oil demand, the cut in supply might be neutralised.”
OPEC+ countries produce approximately 60% of the world’s oil. The group’s next meeting is scheduled for November 26, reported Bangkok Post.
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