Major oil producers, led by Saudi Arabia and Russia, are expected this week to cut their biggest output since the start of the Covid-19 pandemic in an effort to suppress prices.
Energy prices rose after Russia’s invasion of Ukraine earlier this year, pushing inflation to a decade-high level that has weighed on economies around the world.
But crude oil prices have fallen in recent months on demand concerns amid a slowdown in the global economy.
The 13 members of the Organization of the Petroleum Exporting Countries (OPEC), led by Riyadh, and their 10 allies, led by Moscow, will hold their first in-person meeting since March 2020 at the group’s headquarters in Vienna on Wednesday.
Collectively known as OPEC+, the alliance made a drastic production cut of around 10 million barrels per day (bpd) in April 2020 to offset a massive drop in crude oil prices due to the Covid-19 lockdown.
OPEC+ began increasing production last year after the market improved – this year production returned to pre-pandemic levels, but only on paper as some members struggled to meet their quotas.
The group last month agreed to a modest cut of 100,000 bpd from October, the first in more than a year.
A million Cut
Analysts now expect OPEC+ to decide at Wednesday’s meeting to take 1 million bpd off the market from November.
“There is a lot of speculation about how the alliance will respond to a deteriorating economic outlook and lower prices,” said Craig Erlam, an analyst at trading platform OANDA.
“Now that a sizeable cut is on the cards, the question is whether it will be big enough to offset the destruction in demand caused by the coming economic downturn,” he added.
Oil prices have fallen below $90 after Russia’s invasion of Ukraine saw oil prices close to $140 a barrel.
According to UBS Bank, a cut of at least 500,000 bpd would be necessary to prevent a price slide.
In anticipation of Wednesday’s meeting, oil prices rose more than four percent on Monday, with international benchmark Brent North Sea crude reaching $88.55 – still far from the March peak.
Ignoring the West
PVM Energy analyst Stephen Brink said OPEC+ would “like to reassert its influence” when the group meets this week.
Ultimately, producer groups have lost control of the oil market in recent weeks, he said.
It remains to be seen how the United States and other major oil consumers will react to any decision by OPEC+ to cut production.
Consumer countries have urged OPEC+ to open the taps more widely to bring down prices – calls the group has largely ignored.
US President Joe Biden made a controversial visit to Saudi Arabia in July, meeting with Saudi Crown Prince Mohammed bin Salman despite vowing to make Riyadh a “pariah” after the 2018 killing of journalist Jamal Khashoggi.
“OPEC will make no friends among Western leaders, especially petroleum importers whose economies and currencies are in the trade balance due to high oil prices,” SPI Asset Management analyst Stephen Innes said ahead of Wednesday’s meeting. I am being destroyed due to corruption.” .
Observers have expressed doubts about how much more OPEC+ could potentially pump with some of its members struggling to meet quotas.
Bjarne Schieldrop, chief commodities analyst at SEB Research Group, predicted that “it will be very easy for the group to implement cuts because most members are stretched to what they can produce”.
He said that Saudi Arabia is currently producing 11 million barrels per day.
“It has not sustained this much production more than twice in history and then only for 1-2 months,” he said.
