Page 49 - IRANRptOct22

9.0 Industry & Sectors 9.1 Sector news
9.1.1 Oil & gas sector news
OPEC+ makes 2mn bpd cut, angering the US
The OPEC+ group of oil producers made the decision to cut combined output by 2mn barrels per day (bpd) when they met in person this week for the first time since the coronavirus (COVID-19) pandemic began. It comes despite fears about the state of the global economy and follows a lengthy period during which Middle Eastern oil producers in particular have been urged to increase output as they near theoretical output highs.
The reduction was the group’s second in as many months, with September’s decision wiping out the 100,000 bpd added to output in August.
Over the previous 18 months OPEC+ had been working to return around 10mn bpd of supplies taken off the market to stem the massive losses experienced by oil exporting nations when crude prices plummeted in Q2 2020. The slow build-back ensured that prices rose steadily, but renewed volatility amid conflict and concerns about demand has necessitated action in the opposite direction as many market commentators opine that the group now views $90 per barrel as a non-negotiable price floor, though the Saudi government has vehemently denied any desire to control prices.
The cut drew immediate criticism from major consuming nations, led by C+ members to raise output.
The White House published a statement by National Security Advisor Jake Sullivan and National Economic Council Director Brian Deese, which said Biden had been “disappointed by the short-sighted decision by OPEC+ to cut production quotas while the global economy is dealing with the continued negative impact of Putin’s invasion of Ukraine”. The true source of this disappointment is likely to be the upward pressure it will have on fuel prices just over a month before Biden faces a challenging midterm election. However, despite widespread pressure, the group’s top producers – Saudi Arabia and Russia – have stuck by each other, appearing to have learnt from the folly of their short-lived price war that coincided with the start of the pandemic, and members said that the reductions were required “in light of the uncertainty that surrounds the global economic and oil market outlooks.”
With sanctions constraining the market for Russian crude as its ‘military operation’ in Ukraine continues and Moscow moves to annexe four south-eastern regions of its neighbour, Riyadh has refrained from criticism, perhaps with an eye on the stability of oil relations and another on its own long-running military campaign in Yemen.
Russia was reported to be keen to cut output by 1mn bpd, while Saudi Arabia had been rumoured to be considering an additional, unilateral cut in the region of 500,000 bpd.
The two countries account for more half of the OPEC+ group’s 43.86mn bpd production quota for October at 11mn bpd each, but while Saudi Arabia has been able to produce around this level of late, Russian output has fallen as sanctions bite.
With both countries’ quotas now falling to 10.478mn bpd, there will be less pressure on Saudi Arabia to maintain production at levels nearing all-time highs as prices sit in what Riyadh likely sees as a ‘middle ground’.
49 IRAN Country Report October 2022 www.intellinews.com