OPEC+ rush to cut output likely to drive up prices and further inflation – Copyright AFP Manjunath Kiran
Anne Beed with Emeline Bourkel in London
Oil cartel OPEC+ on Monday agreed to cut production for the first time in more than a year as it seeks to raise prices that have fallen on recession fears.
The move could irritate the United States as it forced the group to ramp up production to drive down energy prices that have fueled inflation that has been high for decades.
OPEC+, a 23-nation coalition led by Saudi Arabia and Russia, agreed to massive production cuts in 2020 as the Covid pandemic sent oil prices plummeting, but last year it began modestly increasing production again as the market improved.
Oil prices jumped to nearly $140 a barrel in March after Russia invaded Ukraine.
But they have since fallen below $100 a barrel amid fears of a recession, Covid lockdowns in China and nuclear talks with Iran that could bring Iranian oil back to the market.
While analysts expected another modest increase at Monday’s ministerial meeting, OPEC+ said in a statement that it had decided to cut output by 100,000 bpd in October, returning to August production levels.
The group also left the door open for negotiations until the next meeting, scheduled for October 5, “to review market developments, if necessary.”
Saudi Energy Minister Prince Abdulaziz bin Salman said in an interview with Bloomberg after the decision was made that it demonstrated that OPEC+ is willing to adjust production in both directions to meet its targets.
“A simple set-up shows that we will be attentive, proactive and proactive in terms of maintaining the stability and efficient functioning of the market,” he said.
Bjorn Schieldrop, chief commodities analyst at SEB’s research group, told AFP the decision was a clear message: “OPEC+ will not let oil prices fall. Further cuts will be initiated as needed.”
While analysts say the cut was mostly symbolic, oil prices rose more than three percent since the announcement, with international benchmark Brent topping $96 a barrel and US contract WTI hitting nearly $90.
At its most recent meeting, OPEC+ agreed to a modest 100,000 bpd output increase in September after US President Joe Biden traveled to Saudi Arabia to call for more production, though it was six times less than its previous decisions. .
But after oil prices fell again due to growing fears of a recession, the cartel began to raise the possibility of a change in course.
The United States said after the OPEC+ decision that oil production must be kept high to support global economic growth.
“President Joe Biden has made it clear that energy supply must meet demand to support economic growth and lower prices for US consumers and consumers around the world,” White House press secretary Karine Jean-Pierre said in a statement.
Craig Erlam, an analyst at trading platform OANDA, said the cut was “also a blow to President Biden, as last month’s rise was seen as a symbolic gesture following his visit.”
“Now it’s clear how valuable it actually was or wasn’t, as it turned out. The political damage this has caused has been for nothing, and if anything, it looks worse than if nothing had changed from the start,” Erlam said.
– Iran is negotiating –
Caroline Bain, a commodities expert at Capital Economics, said the cut was not a complete surprise and “nothing more than symbolic” as OPEC+ struggled to meet its quotas due to low production in some member countries.
“The big picture is that OPEC+ is producing well below its production target, which is unlikely given that Angola and Nigeria in particular are unable to return to pre-pandemic production levels,” Bain said.
In an attempt to contain rising oil prices, the United States and its allies have released oil from their emergency reserves.
And in an attempt to curb Russian financing of the war, the G7 group of industrialized powers agreed on Friday to “urgently” take action to curb the price of Russian oil.
Moscow has warned that it will no longer sell oil to countries that use the unprecedented mechanism, and called it a destabilizing force in the market.
Another geopolitical issue is clouding the outlook.
Negotiations aimed at resuming a historic nuclear deal between Tehran and world powers could lead to an easing of oil sanctions in exchange for a containment of nuclear activities.
However, Washington said on Thursday that Tehran’s latest response to the EU project was “unfortunately… unconstructive.”
EU foreign policy chief Josep Borrell, who is leading efforts to salvage the suspended Iran nuclear deal, said on Monday that recent exchanges have made him “less confident” of reaching an agreement.