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OPEC+ members have agreed to make further voluntary cuts to oil production in 2024 to increasingly stimulate the market. However, crude oil prices fell amid signs of ongoing tensions in the group.
Saudi Arabia has pledged to extend an existing voluntary cut of 1 million barrels per day until the end of the first quarter, while Russia said it will deepen its existing voluntary export cut to 500,000 b/d from 300,000 b/d as the Group is trying to balance sputtering global economy and rising supplies from rival producers.
However, in an unusual move, OPEC officials said additional voluntary cuts, expected to bring the total reduction to over 2 million barrels a day, or about 2 percent of world supply, would be announced in due course by individual members, rather than the secretariat.
The uncertainty added to growing market concerns about tensions emerging more than a year after production cuts began in the OPEC+ coalition that have so far had a limited impact on prices.
The OPEC+ meeting had initially been postponed since Sunday as members argued over production targets and was moved online instead of ministers meeting in person in Vienna at OPEC headquarters.
Brent crude, the international oil benchmark, initially rallied on news of the cuts but then reversed and posted a decline on the day. The contract for February delivery lost more than 2 percent and traded at about $80 a barrel, well below $98 a barrel. Barrels hit their yearly high in September.
The US benchmark West Texas Intermediate fell 2.5 percent to $76 a barrel.
Traders said the market was losing confidence in OPEC+’s ability to further support prices, plagued by expectations of relatively subdued demand growth next year and rising alternative supplies.
But analysts said supply would become significantly tighter in the first quarter of next year if all the cuts were made.
“The market will test Opec+ and see if $80 a barrel is really a floor they can defend,” said Raad Alkadiri of Eurasia Group. “The cuts billed as ‘voluntary’ undermine the psychological impact on the market somewhat, but if the full cuts are implemented their impact on the market should not be ignored.”
Prince Abdulaziz bin Salman, Saudi Arabia’s energy minister, who usually features prominently at major OPEC meetings, shunned the opportunity to hold a news conference to explain the group’s strategy.
The extension of the kingdom’s voluntary cut of 1 million b/d was announced by Saudi Arabia’s state press agency.
However, a series of further commitments from members followed, including the UAE state news agency voluntarily announcing a cut of 163,000 b/d in the first quarter, while Iraq and Kuwait said they would cut output by 211,000 b/d and 135,000 respectively b/d reduce /d or Oman, Algeria and Kazakhstan also promised further reductions.
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Amrita Sen of Energy Aspects said that while Opec+ had failed to “instill confidence in the market”, the market would become tighter if it followed through on promised supply curbs.
The oil cartel is trying to boost prices that have fallen in recent months as tensions in the Middle East are heightened by the war between Israel and Hamas.
Saudi Arabia needs oil prices around $100 a barrel to finance Crown Prince Mohammed bin Salman’s ambitious economic reform program, but has faced resistance at times from the White House over concerns about the impact on inflation.
A White House official said Thursday after OPEC’s announcement that President Joe Biden was “the focus.” [fuel] Prices for American consumers that have been steadily declining.”
People close to the powerful Gulf states have ruled out the possibility of an embargo similar to the cartel’s actions during the 1973 Yom Kippur War. But the Financial Times reported this month that OPEC countries may want to send a signal about U.S. support for Israel given the high level of destruction in Gaza.
The delay in Sunday’s meeting was due in part to talks with African members, including Angola and Nigeria, who have resisted attempts to cut production as they try to revive their oil sectors after years of underinvestment and mismanagement.
OPEC said Angola, Nigeria and Congo had all lowered their production baselines – the level from which production quotas are calculated. None of the sub-Saharan African countries offered additional voluntary cuts.
Additional reporting by Tom Wilson in London and James Politi in Washington