Opec+ agreed to its deepest cuts to oil production since the 2020 COVID-19 pandemic at a Vienna meeting on October 12, 2022, curbing supply in an already tight market despite pressure from the United States and others to pump more. In addition, the cut could spur a recovery in oil prices that have dropped to about $90 from $120 three months ago on fears of a global economic recession, rising US interest rates, and a stronger dollar. The article is about Opec+ Agreed Deep Cuts to Oil Production.
The United States had pushed Opec not to proceed with the cuts, arguing that fundamentals don’t support them, a source familiar with the matter said. “Higher oil prices, if driven by sizeable production cuts, would likely irritate the Biden Administration ahead of US mid-term elections,” Citi Analysts said in a note.
“There could be further political reactions from the US, including additional releases of strategic stocks, along with some wildcards including further fostering of a NOPEC bill,” Citi said, referring to a US antitrust bill against Opec. JPMorgan also said it expected Washington to implement countermeasures by releasing more oil stocks.
Opec+ sources said the agreed production cuts of 2 million bpd or 2 percent of global demand would be made from existing baseline figures. That means the cuts would be less deep because Opec+ fell about 3.6 million barrels per day short of its output target in August. Under-production happened because of Western sanctions on countries such as Russia, Venezuela, and Iran and output problems with producers such as Nigeria and Angola. Goldman Sachs analysts said they estimated the real production cuts would amount to 0.4-0.6 million bpd, mainly by Gulf Opec producers such as Saudi Arabia, Iraq, the United Arab Emirates, and Kuwait.
Analysts from Jefferies said they estimated the accurate cuts at 0.9 million bpd. Saudi Arabia and other members of Opec+ – which groups the Organisation of the Petroleum Exporting Countries and other producers, including Russia – have said they seek to prevent volatility rather than target a particular oil price. Benchmark Brent crude traded flat at $92 per barrel on October 12 after climbing on October 11.
The West has accused Russia of weaponizing energy, creating a crisis in Europe that could trigger gas and power rationing this winter. Moscow, meanwhile, accuses the West of weaponizing the dollar and financial systems such as SWIFT in retaliation for Russia sending troops into Ukraine in February.
While Saudi Arabia has not condemned Moscow’s actions in Ukraine, US officials have said that Washington wants lower oil prices to deprive Moscow of oil revenue. Relations have been strained between Saudi Arabia and the administration of Biden, who traveled to Riyadh this year but failed to secure any firm cooperation commitments on energy.
“The decision is technical, not political,” United Arab Emirates Energy Minister Suhail al-Mazroui told reporters ahead of the meeting. “We will not use it as a political organization,” he said, adding that concerns about a global recession would be one of the key topics. Russian Deputy Prime Minister Alexander Novak, put on the US special designated nationals’ sanctions list last week, also traveled to Vienna to participate in meetings. Novak is not under EU sanctions.
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