OPEC+ agrees to deepen voluntary cuts in oil production

LONDON/MOSCOW/DUBAI (Reuters) – OPEC+ oil producers agreed on Thursday to voluntary production cuts totaling about 2.2 million barrels per day early next year, led by Saudi Arabia, to extend its current voluntary cut.

Benchmark global oil prices held steady at about 2%, partly because the cuts were voluntary and because of investors’ expectations before the meeting that additional supply cuts could be deeper.

Saudi Arabia, Russia and other members of OPEC+, which pump more than 40% of the world’s oil, met online on Thursday to discuss supply policy.

“The market reaction suggests a lack of confidence in the full effectiveness of the cuts,” said Christian Malek, an analyst at JP Morgan.

“However, establishing a new framework for each member to meet its cuts reflects the degree of trust and cohesion among members; for example, the fact that Brazil has joined is a testament to the strength of OPEC+ numbers.”

The group discussed 2024 production amid expectations that the market is facing a potential surplus, and Saudi Arabia’s reduction of one million barrels per day is scheduled to end next month.

OPEC+ production of about 43 million barrels per day already reflects reductions of about 5 million barrels per day aimed at supporting prices and stabilizing the market.

OPEC said in a statement after the meeting that the total cuts amount to 2.2 million barrels per day from eight producers. This figure includes an extension of the Saudi and Russian voluntary cuts of 1.3 million barrels per day.

The additional 900,000 bpd cuts pledged on Thursday include cuts of 200,000 bpd in fuel exports from Russia, with the remainder divided among six members.

Russian Deputy Prime Minister Alexander Novak said that Russia’s voluntary reduction would include crude and products.

The UAE said it had agreed to reduce production by 163,000 barrels per day, while Iraq said it would reduce an additional 220,000 barrels per day in the first quarter.

Saudi Arabia, Russia, the United Arab Emirates, Iraq, Kuwait, Kazakhstan and Algeria were among the producers who said that the cuts would be phased out after the first quarter if market conditions allowed.

OPEC+ is focusing on reducing production with prices falling from about $98 in late September and growing concerns about weak economic growth in 2024 and expectations of excess supply.

The International Energy Agency (IEA) this month forecast a slowdown in demand growth in 2024 as “the final phase of the pandemic economic recovery dissipates and as energy efficiency gains, expansion of electric vehicle fleets and structural factors strengthen.”

OPEC+ also invited Brazil, one of the 10 largest producers, to become a member of the group. The country’s energy minister said he hopes to join in January.

The OPEC+ meeting coincides with the opening of the United Nations COP28 climate summit, hosted by the United Arab Emirates, an OPEC member.

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