OPEC Production Cuts

Further OPEC+ production cuts could be looming | OilPrice.com

OPEC+ canceled this month’s increase in oil production targets on Monday and cut the group’s collective quota by 100,000 barrels per day (bpd) for the month of October.

While the move is entirely negligible in terms of actual market supply, given not only the slight shift in overall target but also the producer group’s massive underperformance in the region of 2.9m bpd below quota, Monday’s OPEC+ decisions sent a strong message to the oil market that the group is ready to meet at any time and decide on any cuts it deems appropriate to “stabilize” oil prices.

It’s a message to the market that analysts widely interpret as the determination of the alliance and its de facto leader, Saudi Arabia, to continue to intervene in the market and not let prices fall too low. compared to current levels.

Monday’s OPEC+ meeting approved a decision to cut the collective oil production target by 100,000 bpd for October, despite Russia would have resisted such a gesture. In another ultra-short meeting, the energy ministers of the OPEC+ production pact agreed to bring target production levels back to August quotas, saying last month’s increase was only slated for September.

But more importantly, OPEC+ decided it could call a meeting at any time to discuss further actions. The meeting, OPEC said, decided to “request the president to consider convening an OPEC and non-OPEC ministerial meeting at any time to address market developments, if necessary.”

By giving to the president of the alliance, Saudi Energy Minister Prince Abdulaziz bin Salman the power to call a meeting at any time if necessary, OPEC+ has sent a strong message to the oil market that the cuts could come in the short term, “in any form”, which could mean that unilateral cuts might not be ruled out either.

Although October’s token cut does not change fundamental supply-demand balances, OPEC+’s willingness to intervene whenever it deems necessary suggests that Saudi Arabia and other members influential OPEC+ believe that oil prices have already seen enough selling in recent months.

“OPEC+ action seems to confirm that the Brent floor is not too far below 90 USD/bbl. message to the US administration, which has pressured OPEC for much of the year to increase production more aggressively,” Warren Patterson, head of commodities strategy at ING, commented on the results of the OPEC+ meeting. The US administration, for its part, commented on the latest OPEC+ decision with White House press secretary Karine Jean-Pierre saying “The president has been clear that energy supply must meet demand to support economic growth and lower prices for American consumers and consumers around the world,” as AP said.

“President Biden is committed to continuing to take all necessary steps to strengthen energy supply and drive down energy prices,” the White House added.

But Saudi Arabia is thinking about market “stability” – or, in OPEC+ parlance, rising oil prices – with its most recent market messages.

Last month, Prince Abdulaziz bin Salman said OPEC+ was ready to cut production at any time, in any form, if he believes it would bring stability to the “schizophrenic” oil market.

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After the 100,000 bpd cut was agreed on Monday, the energy minister of the world’s top crude oil exporter told Bloomberg in a interview “This decision is an expression of the desire that we will use all the tools in our kit.”

“The simple adjustment shows that we will be attentive, pre-emptive and proactive in terms of supporting the stability and efficient functioning of the market for the benefit of market participants and industry”, said Prince Abdulaziz bin Salman.

October’s small quota cut is “intended to send a signal that OPEC+ is back in a price watch mode,” said Bill Farren-Price, head of global macro oil and gas research. at Enverus, Bloomberg.

According Jason Bordoff, energy and climate policy expert at Columbia University: “Oil (and pump) prices have fallen. 100kbd may seem negligible, but the message of today’s cut is clear: OPEC+ thinks they’ve come down enough.”

An OPEC source said Reuters after Monday’s OPEC+ meeting that “up and down price movements are causing concern”, while another source in a Gulf country said that “members have confidence that the president can intervene whenever necessary to bring more stability and this can go beyond October until the end of the agreement (OPEC+).

And after?

OPEC+ will seek stability and keep its barely stretched spare capacity intact amid heightened uncertainty in both supply and demand in the months ahead.

In the supply, it is not clear how the planned Russian oil price cap would have an impact on the markets, especially if Russia carries out its threat to stop exporting its oil to importers who have adhered to this capping mechanism. Then there is the possibility of a relaunch of the Iran nuclear deal, although the latest developments point to a to move back” in the indirect talks between the United States and Iran, under the aegis of the EU, on a final draft of a possible agreement.

On the demand side, the economic slowdown in major economies, including China and the United States, could dampen oil demand growth. But a severe shortage of natural gas in Europe and exorbitant gas prices in Europe and Asia could prompt more gas-to-oil transition as winter approaches.

By Tsvetana Paraskova for Oilprice.com

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