OPEC + agrees to cut crude supply in an attempt to raise oil prices
OPEC+ agreed on Monday to cut crude supply in a bid to prop up oil prices in defiance of calls from Western governments struggling to curb inflation in the face of an escalating global energy crisis.
The group of producers will cut 100,000 barrels per day of supplies from October, reversing an earlier increase of the same amount agreed last month after US President Joe Biden’s visit to Jeddah.
While traders said volumes are relatively small in the global oil market, where demand is around 100 million barrels per day, the signal to Washington and the energy sector was stronger: OPEC and its allies, including Russia, will move to defend oil prices.
“This has a political dimension – Russia wants to make the West pay for the sanctions it has imposed on Moscow,” said Bill Farren Price, a director at the consultancy Envirus. What better way to persuade its OPEC+ partners to start tightening the oil market. Biden’s hopes for some kind of accommodation with Saudi Arabia seem naive now.”
The policy reversal from OPEC+ marks the end of months of oversupply during a rally that brought Brent crude close to a record high earlier this year in the wake of Russia’s invasion of Ukraine.
But selling in recent weeks has pushed Brent below $100 a barrel, amid growing fears of a recession in Europe and weak demand for oil from China. Sharp price drops last week sparked calls for price cuts from some OPEC+ members. Brent crude rose 4 percent on Monday in London after the meeting to trade at $96.60 a barrel.
Matthew Holland, a geopolitical analyst at consultancy Energy Aspects, said the cut was at least partly designed to “show the market that the group will support prices if they look like they are collapsing.”
But analysts said the cut carries geopolitical weight beyond the price of oil, and comes just days after G7 nations agreed to cap the price of Russian oil exports and hours after Moscow confirmed it would keep a major natural gas pipeline to Europe closed until Western sanctions. on the country.
The decision to cut OPEC + also comes as the United States and other countries are close to concluding a nuclear deal with Iran, which will end sanctions imposed on the oil sector and allow for an increase in supply.
It is a message to the United States and the international community. . . “Don’t think we will sit idly by if consumers continue to try to interfere in the market, whether that is by capping prices, issuing strategic stocks, or trying to bring Iran back into the market,” said Raad al-Qadri of Eurasia. Collection.
A statement issued by the cartel after the meeting said that “high volatility and increased uncertainty require continuous assessment of market conditions and a willingness to make immediate adjustments to production in various forms, if necessary.”
The White House said Biden “was clear that energy supplies must meet demand to support economic growth” but did not directly address the OPEC+ production cut.
Christian Malik, an analyst at JPMorgan, said the decision marked a “new era” for OPEC+, which would intervene in the future “on a Fed-like basis in a more dynamic way.”
But the decision will also raise alarm as Europe’s energy crisis deepens, as rising natural gas and electricity prices threaten to push the continent into a deep recession.
In the United States, Biden struggled for months to bring down high gasoline prices, as the White House repeatedly pressured Saudi Arabia to increase the supply of crude oil.
The United States and other Western countries have for months been supplying the market with crude from emergency stocks – a move analysts believe helped prevent a sharp rise in prices after Moscow launched its all-out invasion earlier this year.
People familiar with Saudi oil policy said Monday’s decision also reflects the kingdom’s concern that prices are decoupling from supply and demand fundamentals at a time of volatility in energy markets.
Last week, Saudi Oil Minister Prince Abdulaziz bin Salman warned of the possibility of a cut, given what he said was a disconnect between the financial and physical oil markets.
Analysts said the kingdom is keen to support prices and has concerns that the oil market has become complacent.
Additional reporting by Felicia Schwartz in Washington