According to OPEC sources, OPEC+ will consider reducing oil production by more than a million barrels per day (bpd) the following week in order to address the weak oil market. This would be the largest action taken since the COVID-19 pandemic.
The October 5 meeting will take place against the backdrop of plummeting oil prices and months of intense market volatility, which led Saudi Arabia, the group’s top producer, to declare that the group could reduce output.
Despite pressure from major consumers, such as the United States, to lower oil prices in order to support the global economy, OPEC+, which combines OPEC countries and allies like Russia, has refused to increase output. Despite this, prices have dropped significantly over the past month due to concerns about the global economy and a surge in the dollar after the Federal Reserve raised interest rates.
A significant production cut is poised to anger the United States, which has been putting pressure on Saudi Arabia to continue pumping more to help oil prices soften further and reduce revenues for Russia as the West seeks to punish Moscow for sending troops to Ukraine.
The West accuses Russia of invading, but the Kremlin calls it a special military operation.
Saudi Arabia has not condemned Moscow’s actions amid difficult relations with the administration of U.S. President Joe Biden.
Last week, a source familiar with Russian thinking said Moscow would like to see OPEC+ cut 1 million bpd, or one percent of global supply.
That would be the biggest cut since 2020, when OPEC+ reduced output by a record 10 million bpd as demand crashed due to the COVID pandemic. The group spent the next two years unwinding those record cuts. On Sunday, the sources said the cut could exceed 1 million bpd. One of the sources suggested cuts could also include a voluntary additional reduction of production by Saudi Arabia.
OPEC+ will meet in person in Vienna for the first time since March 2020. Analysts and OPEC watchers such as UBS and JP Morgan have suggested in recent days that a cut of around 1 million bpd was on the cards and could help arrest the price decline.
According to Stephen Brennock of oil broker PVM, “$90 oil is non-negotiable for the OPEC+ leadership, so they will act to safeguard this price floor.”
