OPEC+ agreed Monday to cut oil production for the first time in over a year, delegates said, saying it should pull back about 100,000 barrels a day amid fears of a global recession and more Iranian crude coming to the market in the event of a revived nuclear deal.
The move shows how worries over an economic slowdown are dominating a global oil market that has experienced a 25% decline in Brent crude prices in the past three months. Fears of oil shortages after Russia’s invasion of Ukraine had driven prices above $100 a barrel for months this year, but the market’s recent slide prompted the Organization of the Petroleum Exporting Countries and Moscow-led allies, collectively known as OPEC+, to prop up a market that had been lifting petrostate economies from Moscow to Riyadh.
The small cut would reverse the 100,000 barrels a day that OPEC+ said it would add to the market last month following President Biden’s trip to Saudi Arabia, the world’s largest oil exporter. The U.S. and the West have called on OPEC+ to pump more oil to help tame rising inflation, but the group had resisted.
Brent crude rose 3.76% on Monday to $96.63.
In a statement accompanying the decision, OPEC+ said it would be ready to hold emergency meetings in the coming weeks, signaling that it would act if prices took another dive.
The move ended an 18-month era of production increases for OPEC+. The group slowly brought crude back onto the market after a dramatic cut during the pandemic when demand plunged. But in recent months, the oil alliance has fallen short of its collective production target, or quota, of 42 million barrels a day by about 3 million barrels a day.
Many OPEC members are pumping at full tilt and couldn’t increase output even if they wanted to. For instance, Nigeria and Angola respectively pumped 643,000 barrels a day and 360,000 barrels a day below their OPEC-set quota in July. Equatorial Guinea, the Republic of Congo and Algeria also produced less than they pledged. Among OPEC allies, sanctions-hit Russia is also underproducing by 1 million barrels a day, according to the International Energy Agency, which represents industrialized energy consumers.
Even Saudi Arabia, known as the world’s oil kingpin for its ability to ramp output up and down based on market conditions, is nearing its limit, according to people familiar with the matter.
In July and August, the kingdom’s production averaged 10.9 million barrels a day, up from just under 10.7 million barrels a day in June, according to data provider Kpler. That is close to its highest sustained level ever of 11 million barrels a day.
The production cut came as oil prices were falling closer to $90 a barrel for Brent crude, a level that some oil-market observers said was a psychological floor that Saudi Arabia didn’t want to see prices fall under.
The decision to cut production “sends a signal that OPEC are ready for an intervention,” said Christyan Malek, Christyan Malek, head of oil and gas research at
Russia, the biggest non-OPEC member, had signaled its opposition to a production cut in recent days. Moscow is concerned that pulling back would reduce its leverage with oil-consuming nations that are still buying its petroleum but at big discounts, The Wall Street Journal reported, citing people familiar with the matter.
Members are also concerned Iran could bring its sanctioned crude back to markets if it strikes an agreement with global powers to revive a nuclear pact. There are also worries that oil demand could weaken if the world enters a recession or if China’s Covid-19 restrictions spur another economic slowdown there.
Saudi Arabia’s Energy Minister
Prince Abdulaziz bin Salman
first suggested last month that OPEC+, could cut production. His argument was more technical and came as prices were falling below $100 a barrel, saying the group needs to act amid the risk of a global recession and the prospect of Iranian oil coming back onto the market.
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