With oil markets tumbling, the world’s top producers agreed Thursday to cut oil output by nearly 900,000 barrels a day, just under 1 percent of global supplies, in an effort to prop up prices.
Additionally, Saudi Arabia said it would continue to reduce production by one million barrels per day, a restriction that began in July. Russia said it would reduce its exports of diesel, gasoline and other refined products by 200,000 barrels per day; said it was already withholding 300,000 barrels a day of crude oil exports.
It remains to be seen whether these measures by the OPEC Plus group will be enough to boost skeptical markets. The cuts were described as “voluntary” and analysts say some producing countries are frustrated by the seemingly endless need for production cuts.
Richard Bronze, head of geopolitics at Energy Aspects, a research firm, said markets could eventually realize that OPEC Plus was “removing a significant amount of supply from forecasts for the first quarter of next year.”
“The group is working to avoid a buildup of inventories and prices well below current levels,” Oswald Clint, an analyst at Bernstein, a Wall Street research firm, said after the meeting.
But oil traders seemed baffled by the group’s implementation of the cuts. After Thursday’s meeting, OPEC Plus issued a press release that contained little information, causing oil prices to drop sharply.
Almost two hours later, a second statement announced the new cuts, which will be made by Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria and Oman. Oil prices recovered somewhat, but still fell about 2.5 percent on the day.
“The communication has disappointed the market,” Bronze said.
Saudi Arabia’s Oil Minister Prince Abdulaziz bin Salman achieved one likely goal: pressuring other producers to share the burden of cuts with Riyadh, which is producing almost two million barrels a day less than a year ago.
The cuts will begin in January and extend until the end of March, after which they will be phased out, subject to market conditions.
Prince Abdulaziz also announced at the meeting that Brazil, an oil giant that He has not been part of the producer group, he was expected to join next year. Alexandre Silveira de Oliveira, Brazil’s Minister of Mines and Energy, attended the meeting via teleconference and confirmed that his country would join in 2024, pending a review of the documents. Brazil, however, will not cut production.
As one of the world’s fastest-growing oil producers, Brazil would add to the firepower of OPEC Plus, which already produces more than 40 percent of the world’s oil supply. Brazil is South America’s largest oil producer and the country is expected to pump around 3.8 million barrels of oil per day next year, according to the International Energy Agency.
The meeting, which was originally scheduled for last weekend, had been postponed, raising concerns that consensus would be difficult to reach. The questions for oil officials were essentially how much to restrict production and how to spread the pain.
Global oil demand is expected to slow sharply in 2024 amid an economic slowdown in China, the largest importer, and tepid growth prospects for much of the global economy.
At the same time, analysts forecast, the United States, Guyana, Brazil and other non-OPEC Plus producers are likely to increase production to absorb the modest increase in demand. In the United States, crude oil production in September rose 1.7 percent, a new monthly record of 13.24 million barrels per day, the Energy Information Administration said.
A key obstacle has been resistance to a decision initially taken in June to substantially reduce production limits for two key African producers, Angola and Nigeria, to levels that would better reflect their actual production. At the same time, the United Arab Emirates was granted a production boost.
“Lingering tensions over how that meeting was resolved appear to be coming to the surface,” Helima Croft, head of global commodities at RBC Capital Markets, an investment bank, wrote in a note to clients on Wednesday.
Croft said both countries insisted that reductions in their quotas “would impose serious economic costs and undermine their investment plans.”
After a review by consultants, Nigeria was given a slightly higher limit than assigned in June, but will still have its quota reduced. Angola’s quota was reduced further, prompting one of the country’s oil officials to say it would not comply, according to Bloomberg News.
