July 25, 2024


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OPEC + plans to cut oil production to support prices

OPEC + plans to cut oil production to support prices

The OPEC + oil alliance is planning a significant production cut to support falling prices, according to people close to the discussions, as the group prepares to meet in person for the first time since March 2020.

The oil group, led by Saudi Arabia and Russia, is expected to discuss production cuts that could amount to more than 1 million barrels per day at the meeting on Wednesday. This is the largest proportion since the beginning of the epidemic and equals more than 1 percent of global supplies.

The move threatens to boost oil prices at a time when most of the world is fighting to cut energy costs and could create a potential break with the United States, where President Joe Biden has been trying to lower fuel prices for motorists ahead of the upcoming crucial midterm elections. Month.

Two people briefed on Saudi Arabia’s thinking said, however, that Saudi Arabia is keen to cut production to support prices and thus can keep some production capacity in reserve. The kingdom fears that Russian production could fall sharply later this year when Western sanctions tighten its oil exports.

Russia is also said to be in favor of the cut as it has seen its oil revenues plummet in recent months, as buyers imposed deep discounts on its oil sales after its full invasion of Ukraine. The recent strength in the ruble also reduces the amount it receives in its local currency for sales of oil deals priced primarily in dollars.

International oil benchmark Brent crude rose 3 percent after news that the producing group was considering cutting supplies to $87.67 a barrel. The contract is still well below the high above $130 a barrel hit earlier this year after the invasion.

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This weekend, OPEC+ announced that it would move the monthly meeting it has held since early in the pandemic from the internet to a full meeting at the group’s headquarters in Vienna, adding to the sense that a fundamental policy shift will be discussed.

People close to the talks said the cuts could amount to 500,000 bpd to 1 million bpd for the group as a whole, but that Saudi Arabia could make an additional unilateral cut to production.

Amrita Sen of Energy Aspects said the group was particularly concerned about the risks of a global slowdown and the impact on consumption growth in emerging markets, so it was “considering significant cuts to pre-empt any potential demand reaction”.

After cutting production in April 2020 as oil demand collapsed during the pandemic, the group has spent most of the past two years steadily adding barrels to the market.

Biden foot Controversial visit To Saudi Arabia in July where oil production was discussed, among other things, with the Crown Prince Mohammed bin Salmanthe daily ruler of the kingdom.

Biden had earlier criticized Prince Mohammed for his alleged links to the murder of journalist Jamal Khashoggi.

But after production increases accelerated this summer following US pressure, Saudi Arabia last month signaled a change of course, leading the OPEC+ group to take action. small cut About 100,000 barrels per day for oil production targets with lower oil prices.

The possibility of deeper cuts has already drawn criticism from top US Democrats. Ro Khanna, chair of the House Environmental Subcommittee, wrote on Twitter that the US should “make clear to the Saudis that we will cut off supplies of aircraft parts . . . if they cut off oil production to strengthen Putin and thus scare the Americans.”

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Saudi Arabia’s oil alliance with Russia, which brought Moscow into the expanded OPEC group in 2016, has at times been at odds with its longstanding ties with the United States, but Riyadh has been eager to play a more independent role.

Saudi Arabia and Russia are the world’s second and third largest oil producers after the United States, but their dependence on energy revenues for government spending is much greater than their dependence on the world’s largest economy.

The United States is keen to target Russian oil revenues as a way to starve Moscow of funding for an invasion of Ukraine, but is also concerned about how high oil prices would be if there were too many supplies. lost from the market.

Washington pushed the G7 to implement a so-called Russian oil price ceiling as a way to keep the Kremlin’s barrels in the market while reducing the revenue they receive.

In December, EU sanctions are set to be reinforced, including a ban on insurance on any ship carrying Russian oil, which the US and UK are also expected to impose if a price cap can be agreed upon.

But Kevin Book, managing director of ClearView Energy Partners in Washington, said the move by Saudi Arabia and other producers to restrict supply may be a reaction to management’s talk of a price cap.

“This is the part where diplomats who talk about regulatory price caps are confronted by producers who talk about physical cuts to supplies,” Bock said.

Saudi Energy Minister Prince Abdulaziz bin Salman, half-brother of Prince Mohammed, has repeatedly warned that the group has limited spare production capacity left to fill any shortfalls.

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He also indicated that he believes that oil traders underestimate the risks to the market, and their number has increased “volatility” and the gaps between the financial and physical oil markets.

Additional reporting by Tom Wilson in London