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Opec+ members agreed to further voluntary cuts in oil production through 2024 in an increasingly fraught effort to boost the market, but crude prices fell amid signs of ongoing strains in the group.
Saudi Arabia pledged to extend output by 1 million barrels a day until the end of the first quarter, while Russia said it would deepen its current voluntary export cut from 300,000 b/d to 500,000 b/d. Disruption of the global economy and supply from competing producers.
But OPEC officials, in an unusual move, said additional voluntary cuts designed for a total reduction of more than 2 million b/d, or about 2 percent of world supply, would be announced in due course by individual members rather than the secretariat.
More than a year after it began cutting production, uncertainty over strains in the OPEC+ alliance is feeding growing market tension, with little effect so far on prices.
The OPEC+ meeting was initially delayed from Sunday as members squabbled over production targets and ministers were moved online rather than face-to-face at OPEC’s headquarters in Vienna.
Brent crude, the international oil benchmark, rallied early on news of the cuts, but traded lower on the day, with the contract for delivery in February losing more than 2 percent to trade near $80 a barrel, which was just below $98. The barrel year had a heavy impact on September.
U.S. benchmark West Texas Intermediate fell 2.5 percent to $76 a barrel.
Traders said the market was losing confidence in Opec+’s ability to meet expectations of relatively modest demand growth next year and rising alternative supplies.
But if all the cuts are made, supplies will tighten significantly in the first quarter of next year, analysts said.
“The market is going to test Opec+ and whether $80 a barrel is really a floor they can defend,” said Eurasia Group’s Raad Alkadiri. “Declared ‘arbitrary’ cuts slightly undermine the psychological impact on the market, but should the full cut be realized, its impact on the market should not be discounted.”
Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman, who usually enjoys his central role at major OPEC meetings, skipped the opportunity to hold a press conference to explain the group’s strategy.
The kingdom’s voluntary 1mn b/d cut extension was announced by Saudi Arabia’s state news agency.
But that was followed by pledges from several members, including the UAE’s state news agency, to voluntarily cut 163,000 b/d in the first quarter, while Iraq and Kuwait said they would cut 211,000 b/d and 135,000 b/d. /d respectively. Oman, Algeria and Kazakhstan pledged further reductions.
Amrita Sen at Energy Aspects said Opec+ had “failed to instill confidence in the market” and that if it followed through on promised supply curbs, the market would start to tighten.
The oil cartel is trying to boost prices, which have fallen in recent months, amid rising tensions in the Middle East over the Israel-Hamas war.
Saudi Arabia needs oil prices close to $100 a barrel to finance Crown Prince Mohammed bin Salman’s ambitious economic reform plan, but has faced pushback at times from the White House, worried about the effects of inflation.
A White House official said Thursday that President Joe Biden was “paying attention” after the OPEC announcement. [fuel] Prices for US consumers continue to decline.
Those close to powerful Gulf members have dismissed the possibility of sanctions similar to those taken by the cartel during the 1973 Yom Kippur War. But the Financial Times reported this month that OPEC nations may be hoping to send a signal about US support for Israel amid the high levels of destruction in Gaza.
Sunday’s meeting was delayed by talks with African members including Angola and Nigeria, which have pushed back against efforts to curb output as they try to revive their oil sectors after years of underinvestment and mismanagement.
Angola, Nigeria and Congo have seen their production bases – the level at which production quotas are calculated – reduced, OPEC said. No sub-Saharan African member has offered additional discretionary cuts.
Additional reporting by Tom Wilson in London and James Polity in Washington