Officials at OPEC and its key allies agreed on Monday to cut oil production by 100,000 barrels a day.
Trim is very small, about one-tenth of world production, and has little impact on supply. But oil markets are likely to interpret that as showing a new direction after more than a year of modest gains. It came out to about $96.30 a barrel.
In a news release, the group said the September production increase was intended for only one month. It added that it would need to “continue to assess market conditions and readiness.”
By cutting production, even by a small amount, OPEC+ is willing to ignore the pleas of the Biden administration, which has lobbied Saudi Arabia, the United Arab Emirates and other producers to increase production. is shown. This is to avoid a backlash against rising energy prices caused by the civil war in Ukraine.
Richard Bronze, head of geopolitics at market researcher Energy Aspects, said the cuts “create a conflict in terms of Western industrialized versus Gulf expectations.”
Saudi Arabia-led OPEC officials have sounded the alarm about the recent drop in oil prices. “They are determined to stop prices from falling too much,” said a memo to customers from Energy Aspects.
Two big unknowns plague the market. One is that Covid-induced lockdown renewals in China, the world’s largest oil importer, will continue to weigh on Chinese demand going forward. The second is whether or not a deal is reached over Iran’s nuclear program, which could eventually release a ton of new Iranian oil onto the market.
Saudi Arabia, the OPEC+ presidency, has recently reminded the market that it is ready to intervene if it determines that price declines are in danger of spiraling out of control. It is sending a signal to the Biden administration that it is ready to take steps such as production cuts that could avoid downward pressure on the economy. From the nuclear deal with Iran.
The OPEC Plus decision is more of a signal to the market. The oil production quotas of many of the group’s members differ significantly from what these countries are actually pumping.
For example, OPEC+ member Russia’s oil production has held up better under sanctions than many forecasters expected, but the International Energy Agency estimates that the country will drop its July target by a day. about 1 million barrels less. .
OPEC Plus fell short of its combined target by nearly 3 million barrels a day in July, according to the IEA. Such shortages could continue in the coming months as sanctions on Russia tighten and other countries such as Nigeria and Angola are unable to respond. Quotas cannot be met due to lack of investment or operational constraints.