Page 4 - MEOG Week 40 2022

MEOG COMMENTARY MEOG

OPEC+ makes 2mn bpd

cut, angering the US

Months of badgering by Western leaders counted for nought this

week as OPEC+ announced a 2mn bpd quota reduction that

serves to bolster prices and cover up issues raising production.

OPEC+ THE OPEC+ group of oil producers made the – have stuck by each other, appearing to have
decision to cut combined output by 2mn barrels learnt from the folly of their short-lived price
per day (bpd) when they met in person this week war that coincided with the start of the pan-
WHAT: for the first time since the coronavirus (COVID- demic, and members said that the reductions
The reduction will lead to 19) pandemic began. were required “in light of the uncertainty that
an effective output drop It comes despite fears about the state of the surrounds the global economic and oil market
of around 1mn bpd. global economy and follows a lengthy period outlooks.”
during which Middle Eastern oil producers in With sanctions constraining the market
WHY: particular have been urged to increase output as for Russian crude as its ‘military operation’
Price volatility, they near theoretical output highs. in Ukraine continues and Moscow moves to
concerns about future The reduction was the group’s second in as annexe four south-eastern regions of its neigh-
upward production many months, with September’s decision wiping bour, Riyadh has refrained from criticism, per-
and dedication to the out the 100,000 bpd added to output in August. haps with an eye on the stability of oil relations
long-standing deal are Over the previous 18 months OPEC+ had and another on its own long-running military
all thought to have been been working to return around 10mn bpd of campaign in Yemen.
factors in the decision. supplies taken off the market to stem the massive Russia was reported to be keen to cut out-
losses experienced by oil exporting nations when put by 1mn bpd, while Saudi Arabia had been
WHAT NEXT: crude prices plummeted in Q2 2020. rumoured to be considering an additional, uni-
The US has called out The slow build-back ensured that prices rose lateral cut in the region of 500,000 bpd.
the move, threatening steadily, but renewed volatility amid conflict and The two countries account for more half of
action to reduce OPEC’s concerns about demand has necessitated action the OPEC+ group’s 43.86mn bpd production
influence on the market. in the opposite direction as many market com- quota for October at 11mn bpd each, but while
mentators opine that the group now views $90 Saudi Arabia has been able to produce around
per barrel as a non-negotiable price floor, though this level of late, Russian output has fallen as
the Saudi government has vehemently denied sanctions bite.
any desire to control prices. With both countries’ quotas now falling to
10.478mn bpd, there will be less pressure on
Criticism and collaboration Saudi Arabia to maintain production at lev-
The cut drew immediate criticism from major els nearing all-time highs as prices sit in what
consuming nations, led by the US, whose Pres- Riyadh likely sees as a ‘middle ground’. Other
ident Joe Biden lobbied hard earlier in the year producers that have been ‘maxing out’, most
to encourage OPEC+ members to raise output. notably Kuwait, will also welcome the respite
The White House published a statement by given issues in raising output.
National Security Advisor Jake Sullivan and
National Economic Council Director Brian Cuts
Deese, which said Biden had been “disappointed While OPEC+ will reduce their collective quota
by the short-sighted decision by OPEC+ to cut by the headline 2mn bpd, underproduction
production quotas while the global economy is among members will see output fall by around
dealing with the continued negative impact of 1-1.1mn bpd, according to Saudi Arabian
Putin’s invasion of Ukraine”. Energy Minister Prince Abdulaziz bin Salman
The true source of this disappointment is Al-Saud.
likely to be the upward pressure it will have on The group fell around 3.6mn bpd short of
fuel prices just over a month before Biden faces a its 43.856mn bpd quota with Iranian, Russian
challenging midterm election. and Venezuelan sales remaining constrained by
However, despite widespread pressure, the sanctions and Angola and Nigeria dealing with
group’s top producers – Saudi Arabia and Russia production issues.

P4 www. NEWSBASE .com Week 40 05•October•2022