OPEC+ cuts oil production amid recession fears

OPEC+ countries on Monday decided to cut output to prop up prices amid recession fears, a first in more than a year, and drastic cuts due to the COVID-19 pandemic.

• Also read: G7 caps Russian oil prices

• Also read: Oil amplifies losses on recession fears

Representatives of the thirteen members of the Organization of the Petroleum Exporting Countries (OPEC) led by Saudi Arabia and its ten allies led by Russia agreed to “return to August quotas”, that is 100,000 barrels less than September, the Vienna-based said alliance in a statement with.

The group, which met via video conference, is leaving the door open to new talks ahead of the next meeting on October 5 “to respond to market developments as appropriate.”

During its monthly meetings, OPEC+ resists calls from Westerners to open its floodgates wider.

“This symbolic decline comes as no real surprise after the murmur of the past few weeks,” Capital Economics analyst Caroline Bain said in a statement.

Saudi Energy Minister Abdelaziz bin Salman seemed to open the door to the possibility of a cut ten days ago by denouncing a market that is “getting caught in a cycle of low liquidity and extreme volatility”.

Hit by a gloomy global economic outlook, the two global benchmark crude oil prices have tumbled in recent weeks from their March highs of nearly $140 a barrel.

Buoyed by the news, they rebounded on Monday, down around 4% to $96.79 a barrel of North Sea Brent and $90.18 for WTI around 14:30 GMT.

“This decision shows that we are ready to use all the tools at our disposal,” the Saudi minister said in an interview with Bloomberg finance agency. “We will be vigilant and proactive in supporting market stability and efficiency.”

The alliance “means that it will act to support prices if prices collapse,” such as in the event of a return of Iranian oil, said Matthew Holland, geopolitical analyst at Energy Aspects research firm.

For US President Joe Biden, who visited Saudi Arabia for the first time as President of the United States in mid-July to influence Riyadh’s strategy, it was “a blow”.

The “political damage” caused by this controversial visit is “sheer waste”, judges Craig Erlam, with a “worse” result than before this initiative.

“Saudi Arabia and OPEC+ are the +central bank of oil+,” jokes Bjarne Schieldrop, an analyst at Seb. “And it’s better never to try to fight them.”

For its part, Moscow, a pillar of the group with Riyadh, has raised “many uncertainties” linked in particular to “the statement by the G7 leaders on the Russian oil price cap”, according to the Deputy Prime Minister in charge of energy issues. , Alexander Novak.

Another element considered is the regular inability of OPEC+ to meet its quotas.

“Current production and quotas are separate now, so it’s a question of credibility,” Schieldrop points out. It is estimated to be nearly 3 million barrels per day below stated targets.

In the spring of 2020, the cartel made severe cuts in view of the pandemic-related slump in demand. A year later he began to open the floodgates again, but with great difficulty.

Widespread political crises or a lack of investment and maintenance work during the pandemic are now hampering the oil infrastructure: many countries in the group, such as Angola or Nigeria, are no longer able to produce.

Only Saudi Arabia and the United Arab Emirates appear to have spare production capacity.

However, the analyst notes that Riyadh is currently flowing nearly 11 million barrels of oil per day, a level it has only reached twice in its history and only temporarily.

“The current level is well above his comfort level,” emphasizes Schieldrop.

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