OPEC+ plans major oil production cut despite US pressure
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The OPEC+ alliance looks set to make deep cuts in the amount of oil it ships to the global economy, which would reduce supply in an already tight market, despite pressure from the United States and other countries to pump more.
Energy ministers from the OPEC cartel, whose leading member is Saudi Arabia, and allied non-members, including Russia, are meeting in person at the group’s Vienna headquarters on Wednesday for the first time since the start of the COVID-19 pandemic in early 2020.
OPEC+ is considering cuts of one million to two million barrels per day, sources told Reuters, with several sources saying cuts could be closer to two million.
Such a production cut “would undoubtedly signal to the market the determination and resolve of the cartel to support oil prices,” UniCredit economist Edoardo Campanella said. But supply would drop by less than announced.
“If the group cuts target production by 1 million barrels per day, actual output would likely drop by about 550,000 barrels per day as countries like Russia or Nigeria that are producing below quota would see their formal target decline but remaining above what they can currently produce,” Campanella said.
The US is pushing OPEC not to proceed with the cuts, arguing that fundamentals don’t support them, a source familiar with the matter said. The White House wants to avoid an increase in petrol prices for US drivers just ahead of congressional elections in November.
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It’s unclear how much impact a production cut would have on oil prices because members are already unable to meet the quotas set by OPEC+. Yet Saudi Arabia might be unwilling to strain its relationship with Russia even if the world’s largest oil exporter had any reservations about cutbacks.
The looming OPEC decision has recently drawn leaders from US President Joe Biden to German Chancellor Olaf Scholz to talk about energy supplies.
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