OPEC+ agrees to small oil production cut

OPEC and its allies led by Russia, on Monday, agreed a small oil production cut to bolster prices that have slid on fears of an economic slowdown.

The oil producers will cut output by 100,000 barrels per day (bpd), amounting to only 0.1% of global demand, for October. They also agreed that OPEC’s leader Saudi Arabia could call an extraordinary meeting anytime if volatility persists.

The decision essentially maintains the status quo as OPEC has been observing wild fluctuations in oil prices.

“OPEC+ is wary of protracted price volatility generated by weak macro sentiment, thin liquidity and renewed China lockdowns, as well as uncertainty over a potential US–Iran deal and efforts to create a Russian oil price cap,” said Matthew Holland at Energy Aspects.

Top OPEC producer Saudi Arabia last month flagged the possibility of output cuts to address what it sees as exaggerated oil price movements.

Benchmark Brent crude oil LCOc1 has dropped to about $95 a barrel from $120 in June on fears of an economic slowdown and recession in the West.

Oil prices have been also dragged down by a potential supply boost
from Iranian crude returning to the market, if Tehran is able to revive its 2015 nuclear deal with global powers.

“The political angle, it seems, is a Saudi message to the US about the revival of the Iranian nuclear agreement... It is hard to interpret the decision as anything but price supportive,” said Tamas Varga of oil broker PVM.

Iran is expected to add 1 million bpd to supply, or 1% of global demand, if sanctions are eased, though the prospects for a nuclear deal looked less clear on Friday.

The White House said on Monday US President Joe Biden was committed to take all steps necessary to shore up energy supplies and lower prices.

Published in The Express Tribune, September 6^th, 2022.

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