World, Back Page

OPEC+ likely to slash oil output

Published : 05 Oct 2022 10:01 PM | Updated : 06 Oct 2022 01:23 PM

Major oil producers led by Saudi Arabia and Russia were expected Wednesday to agree on a major cut in output to prop up prices despite Western concerns over energy-fuelled inflation.

The 13-nation OPEC cartel and its 10 Russian-led allies is reportedly considering a reduction of up to two million barrels per day at a meeting in Vienna -- the biggest cut since 2020.

Such a move could turbocharge crude prices, further aggravating inflation which has reached decades-high levels in many countries and is contributing to a global economic slowdown.

US President Joe Biden personally appealed to Saudi leaders in July to boost production in order to tame prices which soared following Russia's invasion of Ukraine earlier this year.

But crude price have fallen in recent months on concerns over dwindling demand and fears over a possible global recession.

"With consumers only just breathing a sigh of relief after being forced to pay record prices at the pump, today's cut is not going to go down well," said Craig Erlam, an analyst at trading platform OANDA.

Ministers from the Saudi-led Organization of the Petroleum Exporting Countries and its partners will discuss their next move at their first in-person meeting at the group's headquarters in Vienna since March 2020.

They were tight-lipped as they arrived for the gathering on Tuesday.

"Let's wait... We will have to listen to the technical team," the energy minister of the United Arab Emirates, Suhail al-Mazrouei, told reporters, adding that the group was still reviewing market data.

- Geopolitical tensions -

Collectively known as OPEC+, the alliance drastically slashed output by almost 10 million barrels per day (bpd) in April 2020 to reverse a massive drop in crude prices caused by Covid lockdowns.

OPEC+ began to raise production last year after the market improved. Output returned to pre-pandemic levels this year, but only on paper as some members have struggled to meet their quotas. The group agreed last month on a small, symbolic cut of 100,000 bpd from October, the first in more than a year.

Bloomberg, the financial news agency, said OPEC+ officials were discussing the removal of about two million bpd out of the market from November, twice as much as earlier predictions.

Consumer countries have pushed for months for OPEC+ to open taps more widely to bring down prices -- calls that the group has largely ignored.

"Knowing that Russia is willing to cut output, the move could also be perceived as another escalation of the geopolitical tensions" between Moscow and the West, said Ipek Ozkardeskaya, a Swissquote bank analyst.

The OPEC+ discussion also comes as Western nations mull imposing a price cap on Russian oil while an EU ban on most crude from Russia comes into effect in December.

- US elections -

Biden made a controversial trip to Saudi Arabia in July in part to convince the kingdom to loosen the production taps. The trip saw Biden meet Crown Prince Mohammed bin Salman despite his promise to make Riyadh a "pariah" following the 2018 killing of journalist Jamal Khashoggi.

A major cut now would be "something that will not be well received by the White House ahead of next month's midterm elections," said Tama Varga, analyst at PV Energy, referring to congressional elections.

While such a cut could anger Washington, several OPEC+ nations have struggled to meet their quotas in the first place.

Prices soared close to $140 per barrel in the aftermath of Russia's invasion of Ukraine in late February but fell as low as below $90 more recently.

After rallying earlier this week on speculation over the OPEC+ cut, the international benchmark, Brent North Sea crude, was slightly down on Wednesday, hovering above $91.

According to UBS bank, a cut of at least 500,000 bpd would be necessary to stop the price plunge.

Related Topics