The group of major oil producers known as OPEC Plus agreed on Sunday to begin a complex effort to adjust production as it aims to stem a recent price slump. of oil, including a further reduction in output of one million barrels a day in Saudi. Arabia.
The Saudi cut is for one month starting in July, but can be extended.
The group, which includes Russia and its allies, is under pressure to strike a deal to reverse the pessimism that has dominated the oil market in recent weeks. Despite two large output cuts since October, oil prices have fallen about 15 percent lower in the past seven months.
The agreement, the result of long negotiations on Saturday and Sunday, changed the output quotas of many countries, with the United Arab Emirates gaining and others losing production levels. “It’s definitely not a clean and simple deal,” said Richard Bronze, head of geopolitics at Energy Aspects, a research firm.
The agreement includes a voluntary cut of 500,000 barrels a day which was announced in Moscow in February.
Comments at the news conference after the meeting expressed skepticism that Russia is following through on those low production levels. The high level of Russian production, and its increased share in Asian markets including India, often at the expense of Middle Eastern oil producers, has become a sensitive issue for the group.
Some of the data “from Russia just doesn’t add up,” said Suhail al Mazrouei, the oil minister of the United Arab Emirates. He said Russian officials “arrived to explain the numbers.”
OPEC Plus, in a statement, said it was working “to achieve and maintain a stable oil market,” and that it was continuing its recent approach of being “proactive, and pre -emptive.”
As far as the markets are concerned, the main part of the agreement is to further cut production in Saudi Arabia, which will bring its daily output to almost nine million barrels a day. The Saudi oil minister, Prince Abdulaziz bin Salman, called the move “the Saudi lollipop” while announcing it during a news conference.
After suggesting that the cuts were before the meeting, Prince Abdulaziz ended up being the only official who agreed to take the immediate hit.
He may have won some long-term concessions. With this agreement, OPEC Plus is trying to resolve long-standing differences that have made some of the group’s production decisions almost incomprehensible. For example, some oil producing countries including Nigeria and Angola have over the years not reached their targets due to insufficient investment and other issues. They are taking hits on their quotas, starting in 2024.
At the same time, the United Arab Emirates, which has invested billions to increase its oil production capacity, was a modest winner on Sunday, gaining an additional quota of 200,000 barrels a day, starting in 2024. The United Arab Emirates has long sought to produce more oil, even holding a rare public fight with the Saudis in 2021 and suggesting it leave OPEC.
With oil so important to the economies and governments of many of these countries, it is not surprising that the difficult issue of resolving quotas produced a meeting that ended at night in Vienna.
Mr. Bronze of Energy Aspects said the agreement attempts to resolve the issues that have baffled the group. “I think as the market digests the details, there is real substance here,” he said.
Oil officials met over the weekend to decide what to do with markets that have weakened in recent weeks. Prince Abdulaziz was more vocal about the warning that the group could cut production to raise prices and beat out traders betting on low prices.
Other producers, including Russia, are less enthusiastic about scaling back production.
Sunday’s meeting came just two months after OPEC Plus announced an earlier round of cuts. The trims began in May and took little time to make an impact. Analysts also said oil markets – where prices have fallen about 12 percent since mid-April – were heavily influenced by broader economic factors, including weaker-than-expected growth in China’s economy since the end of “zero Covid” policies. That will reduce the impact of supply cuts.
On Thursday and Friday, after Washington reached an agreement on the debt ceiling, Brent crude prices, the international benchmark, rose about $3 a barrel to $76, but prices remained slightly below their level on the eve of the April cut.
Saudi Arabia’s announcement comes days before US Secretary of State Antony Blinken is scheduled to visit the country for talks with Saudi leaders.
Saudi Arabia is the de facto leader of OPEC Plus, and under Prince Abdulaziz and his younger half-brother, Crown Prince Mohammed bin Salman, the country has become more aggressive in its oil policies than in the past, which preferring to cut back in an effort to keep a floor below prices rather than letting the markets take their course.
Crown Prince Mohammed, the kingdom’s main policymaker, wants high oil revenues to finance his ambitious development plans.
Although OPEC does not publish price targets and its officials say they have a long-term view, analysts say the Saudis are now uncomfortable with prices below $80 a barrel. for Brent crude oil. With OPEC Plus producing more than 40 percent of global oil supplies, the group could exert considerable power in the markets if it tried hard enough.
In the past, Saudi-led OPEC cuts have caused friction with the Biden administration, which wants to lower oil prices to ease pressure on American drivers and avoid putting the brakes on the weak global economy.
