OPEC + begins meetings that may agree to further production cuts

VIENNA (Reuters) – OPEC and its allies kicked off two days of meetings on Saturday that could culminate in further production cuts of up to 1 million barrels per day, OPEC+ sources told Reuters, as the group grapples with a slump in oil prices. A supply glut looms.

OPEC +, which includes the Organization of the Petroleum Exporting Countries and allies led by Russia, pumps about 40 percent of global crude, which means that its political decisions can have a significant impact on oil prices.

Three OPEC+ sources told Reuters on Friday that cuts are being discussed among options for the Sunday session. Two other sources said additional cuts were unlikely.

OPEC held a separate brief meeting on Saturday, but the ministers did not comment on possible political decisions after that.

The three sources said the cuts could be as much as 1 million bpd, on top of the current cuts of 2 million bpd and the voluntary cuts of 1.6 million bpd announced in a surprise move in April and put into effect in May.

If approved, it would bring the total size of the cuts to 4.66 million bpd, or about 4.5% of global demand.

“This number is premature. We have not entered into these matters (yet),” Iraqi Oil Minister Hayan Abdul Ghani said before the meetings, when asked about a possible cut of 1 million barrels per day.

Production cuts usually take effect a month after approval, but ministers can also agree to implement them later. They can also decide to keep production steady.

Western countries accuse OPEC of manipulating oil prices and undermining the global economy through high energy costs. The West also accused OPEC of largely siding with Russia despite Western sanctions over Moscow’s invasion of Ukraine.

In response, OPEC insiders and observers said that the money printing carried out by the West over the past decade drove inflation and forced oil-producing countries to act to preserve the value of their main exports.

Asian countries such as China and India bought the lion’s share of Russia’s oil exports and refused to join Western sanctions against Russia.

Basic conversations

The OPEC+ ministers will start meeting from 10 am (0800 GMT) on Sunday in Vienna, three hours earlier than originally scheduled, and will hold a full meeting from 11 am onwards.

Two OPEC sources said the ministers may also discuss new production baselines by which each member would make cuts.

Such conversations have previously turned into a row.

West African countries such as Nigeria or Angola have long fallen short of producing in line with their targets, but they have opposed lowering baselines because the new targets could force them to make real cuts.

By contrast, the UAE has insisted on increasing baselines in line with its increased production capacity, but this means that its share of overall cuts will decline.

“We look forward to a decision that guarantees the sustainability of the supply and demand balance,” UAE Energy Minister Suhail Al Mazrouei said before the meetings.

The ministers spoke to reporters in their hotels in Vienna. OPEC denied media access to its headquarters to reporters from Reuters and other news media.

The surprise production announcement in April helped lift oil prices by about $9 a barrel to above $87, but they quickly fell back under pressure from concerns about global economic growth and demand. On Friday, the international benchmark Brent crude settled at $76.

Last week, Saudi Energy Minister Prince Abdulaziz said investors who cut oil prices or bet on lower prices should “watch out,” which many market watchers interpreted as a warning of additional supply cuts.

The International Energy Agency expects global oil demand to rise further in the second half of 2023, which could boost oil prices.

But analysts at JP Morgan said that OPEC did not act quickly enough to adjust supplies to record high levels of US production and higher-than-expected Russian exports.

“There is simply too much supply,” JP Morgan analysts said in a note, adding that additional cuts could amount to about 1 million barrels per day.

(Covering) Ahmed Ghaddar, Alex Lawler, Maha El Dahan and Julia Payne. Editing by David Holmes, Frances Kerry and Christina Fincher

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