OPEC+ will reduce oil production in 2024 to help improve the market.However, crude prices have fallen due to ongoing tensions within the group.
Saudi Arabia has pledged to extend its voluntary cut of one million barrels per day until the first quarter of 2019. Russia, meanwhile, said that it would increase the voluntary reduction of exports to 500,000 barrels/day from 300,000. The group is looking to counter a slowing global economy as well as rising supplies by rival producers.
Opec officials announced that in a rare move, additional voluntary cuts would be announced in the future by the individual members, rather than the Secretariat. The goal is to reduce the world’s supply below 2mn B/D or around 2 percent.
Markets have been agitated by the growing uncertainty that tensions are arising in the Opec+ alliance more than a full year after they began cutting production. However, this has had a relatively limited impact on prices.
Opec+ was originally scheduled to meet on Sunday, but it was delayed as members disagreed over production targets. The meeting has now been moved online instead of having ministers in Vienna, at Opec headquarters.
Brent crude, oil’s international benchmark, initially rose on news of the reductions, but reversed course to trade lower on the day. The contract for delivery in the month of February lost more than 2 percent to trade at around $80 per barrel, a far cry from the $98 a barrel year-high reached in September.
US benchmark West Texas Intermediate dropped 2.5 percent to $76 a barrel.
Market losing faith in OPEC+’s ability to maintain price due to weak demand growth and increase in alternative supplies. Analysts said, however, that even if the entire amount of cuts was made, the supply would be significantly tightened in the first quarter next year.
Raad alkadiri, of Eurasia Group, said that the market will test Opec+ to see if $80 per barrel is a price they can stand by. The fact that the cuts are labelled as voluntary may have a psychological effect on the market, but the impact if they are fully implemented should not be underestimated.
Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, did not hold a press conference to explain the strategy of the group at Opec’s large meetings.
Saudi Arabia’s official press agency announced the extension of the voluntary 1mn B/d reduction.
Iraq and Kuwait also pledged to reduce their emissions by 211,000 and 135,000 B/D, respectively. Oman, Algeria, and Kazakhstan have also committed to additional reductions.
Amrita Sen, Energy Aspects, said that Opec+ “failed” to instill confidence in the markets. However, if they followed through with the promised supply curbs the market would begin to tighten.
The oil cartel is trying to increase prices because they have fallen recently, and there is increasing tension in the Middle East due to the conflict between Israel and Hamas.
Saudi Arabia requires an oil price closer to $100 per barrel to finance the ambitious economic program of Crown Prince Mohammed Bin Salman. However, the White House has resisted at times, concerned about inflation.
After the Opec announcement, a White House official stated that President Joe Biden is “focused on [fuel] costs for American consumers which are steadily decreasing”.
The Gulf states have rejected the idea of an economic blockade, like the one in 1973 during the Yom Kippur War.reported that Opec nations might want to send a message about the US backing Israel in light of the destruction in Gaza.
The meeting was delayed on Sunday due to talks with African countries, such as Angola and Nigeria. Both nations refuse to decrease their oil production in order to revive their struggling oil industries that have suffered from poor management and lack of investment for many years.Opec reported that Angola’s, Nigeria’s and Congo’s production baselines – the level on which production quotas were calculated – had been lowered. Sub-Saharan African countries did not offer additional voluntary reductions.