OPEC and a group of allies led by Russia agreed on Monday to a small cut in oil production to boost prices that have fallen on fears of an economic slowdown.
Oil producers will cut their output by 100,000 barrels per day (bpd), representing just 0.1% of global demand, by October and also agreed they could meet at any time to adjust output before the next scheduled meeting. for October 5.
The decision essentially maintains the status quo, as OPEC has been seeing wild fluctuations in oil prices, driven by multiple factors in both directions.
“OPEC+ is wary of prolonged price volatility generated by weak macroeconomic sentiment, tight liquidity and China’s new lockdowns, as well as uncertainty over a possible US-Iran deal and efforts to create a cap on the price of Russian oil,” said Matthew Holland of Energy Aspects.
OPEC’s top producer Saudi Arabia last month hinted at the possibility of production cuts to address what it sees as an exaggerated drop in oil prices.
Benchmark Brent LCOc1 crude has fallen to around $95 a barrel from $120 in June on fears of an economic slowdown and a Western recession.
It was also dragged down by a possible surge in the supply of Iranian crude on the market if Tehran revives its 2015 nuclear deal with world powers. Iran is expected to add 1 million bpd to supply, or 1% of global demand, if sanctions are eased, although the prospects for a deal looked less clear on Friday.
However, physical market signs suggest supply remains tight and many OPEC states are producing below targets, while new Western sanctions threaten Russian exports.
Russia has said it will stop supplying oil to countries that support capping the price of Russian energy supplies because of its military conflict in Ukraine. Meanwhile, Russia’s gas deliveries in Europe have been further reduced, which is likely to lead to further price increases.
“A production cut will not make them any friends at a time when the world is facing a cost-of-living crisis,” said Craig Erlam, an analyst at Oanda.
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