OPEC+ meets to discuss potential output cuts – sources.

OPEC and Allies Consider Further Production Cuts

By Ahmad Ghaddar, Alex Lawler and Maha El Dahan

OPEC and its allies are facing flagging oil prices and a looming supply glut, prompting discussions of further production cuts of up to 1 million barrels per day. The group, known as OPEC+, pumps around 40% of the world’s crude, meaning its policy decisions can have a major impact on oil prices.

“We look forward to a resolution that will secure sustainability of balance of supply and demand,”

– UAE’s Energy Minister Suhail Al Mazroui

Three OPEC+ sources have confirmed that cuts are being discussed among options for Sunday’s session, when OPEC+ ministers gather in Vienna. The sources suggest that cuts could amount to 1 million bpd on top of existing cuts of 2 million bpd and voluntary cuts of 1.6 million bpd, announced in April and which took effect in May. If approved, this would take the total volume of reductions to 4.66 million bpd, or around 4.5% of global demand.

However, Iraq’s oil minister Hayan Abdel-Ghani has dismissed the figure as premature, stating that discussions have not yet taken place. Typically, production cuts take effect the following month after they are agreed, but ministers could also agree a later implementation.

Impact on Global Economy

Western nations have accused OPEC of manipulating oil prices and undermining the global economy through high energy costs. The West has also accused OPEC of siding too much with Russia despite Western sanctions over Moscow’s invasion of Ukraine. In response, OPEC officials have said the West’s money-printing over the last decade has driven inflation and forced oil-producing nations to act to maintain the value of their main export.

Asian countries such as China and India have bought the lion’s share of Russian oil exports and refused to join Western sanctions on Russia.

Market Watchers’ Predictions

Last week, Saudi Arabia’s Energy Minister Prince Abdulaziz warned investors who were shorting the oil price, or betting on a price fall, to “watch out,” which many market watchers interpreted as a warning of additional supply cuts. However, Russian Deputy Prime Minister Alexander Novak subsequently said he did not expect any new steps from OPEC+ in Vienna.

The International Energy Agency expects global oil demand to rise further in the second half of 2023, potentially boosting oil prices. However, analysts at JPMorgan have said OPEC has not acted quickly enough to adjust supply to record high levels of U.S. output and higher than expected Russian exports. They suggest that extra cuts could amount to around 1 million bpd.

Edward Moya at brokerage OANDA said, “The oil market is doubtful a consensus for another output cut can be reached between the Saudis and Russians, but traders should never underestimate what the Saudis will do and leverage during OPEC+ meetings.”