OPEC+ mulls new oil production cuts amid Middle East conflict

WORLD  30 November 2023 - 17:47

OPEC and its Russia-led allies are considering new oil production cuts of as much as 1 million barrels a day, delegates said on November 29, despite tensions in oil markets amid the conflict in the Middle East.

The move, which would likely send oil prices higher, could be announced Thursday at a virtual meeting of the cartel. The meeting, originally scheduled for last week, was postponed over disagreements about production, The Wall Street Journal reports.

A deal for further cuts isn’t assured, and the prospect is facing significant resistance within the Organization of the Petroleum Exporting Countries. A rollover of most existing output curbs is the most likely scenario, the delegates said, but talks are continuing.

Saudi Arabia in June cut production by 1 million barrels, in a unilateral move as part of a deal with the other members of the Vienna-based group. Any cuts announced Thursday would be in addition to those announced in June.

Saudi Arabia, the world’s biggest oil producer, is in favour of the new cuts, the delegates said.

Oil prices climbed after The Wall Street Journal reported talks of the possible cuts. Brent, the most widely traded contract, climbed about 1.5% to more than $82 a barrel.

Analysts said the potential curbs were greater than most forecasts.

“I was expecting half a million; 1 million is quite bullish, and we can see that in oil prices popping up,” said Bjarne Schieldrop, chief commodities analyst at SEB. A cut of 1 million “won't necessarily drive it to $90 a barrel and above but it will prevent it from falling below $80.”

Nigeria and Angola, the two biggest African oil producers, have been resisting a downgrade of their individual quotas, which OPEC-commissioned reports say overstate their production capacity, the delegates said. The United Arab Emirates is also reluctant to cut output, they said.

Any extra cuts, if approved, would likely draw a rebuke from the U.S., which slammed 13-strong OPEC and its 10 Russia-led allies for agreeing to a cut of 2 million barrels a day last year. The White House called the decision by the so-called OPEC+ alliance shortsighted and suggested the group was actively supporting Russia’s invasion of Ukraine.

Arab nations such as Saudi Arabia have been critical of an offensive in Gaza by Israel, where thousands have died and large neighbourhoods have been reduced to rubble. The operation was launched in response to Palestinian militant attacks on Oct. 7 on Israel, which the U.S. has backed militarily.

The delegates said the Middle East conflict hadn’t been brought up in the OPEC conversations.

Geopolitical tensions have spiralled beyond Israel and the Palestinian territories. An Israeli-connected ship was recently seized by Yemeni rebels acting in solidarity with the Palestinians. Militias in Iraq—OPEC’s second-largest producer—have exchanged fire with U.S. Army bases.

The OPEC talks also come as global industry and political leaders arrive in Dubai for the United Nations climate summit, where the role of major oil-producing countries in reducing emissions will again be a major topic of discussion.

Saudi Arabia, which has embarked on an ambitious program of projects, including a giant new city in the desert, needs a fiscal break-even oil price of as much as $88 a barrel, according to Goldman Sachs.
A Saudi government representative didn’t return a request for comment.

Robert Yawger, executive director of energy futures at Mizuho Securities USA, predicted Brent prices would rise back to about $90 a barrel and benchmark U.S. crude prices to about $85 a barrel if OPEC+ followed through on the extra cuts.

He added, though, that Saudi Arabia would find it difficult to persuade other members both to sign up for extra cuts and follow through on them given the deep existing curbs. “An old-school, really reliable, month-by-month count the barrels kind of cut: I don’t see that happening,” Yawger said.

Caliber.Az