OPEC+ to Weigh Production Cut to Bolster Oil Prices
Group considers reducing output by 1 million barrels a day, as economic slowdown hurts demand
OPEC+ is set to consider Wednesday its sharpest production cut since the start of the pandemic to help prop up falling oil prices, a move that could put pressure on global economic growth.
The Organization of the Petroleum Exporting Countries and its Moscow-led allies, collectively known as OPEC+, are weighing a reduction of more than 1 million barrels a day, delegates in the group said.
Concerns about a slowing global economy have dragged oil prices down at their fastest pace since the Covid-19 pandemic began in early 2020, prompting OPEC+ to consider ways to prop up the price of oil. Any move by OPEC+ to raise oil prices could put further pressure on Western consumers already hurting from high energy costs while also helping Russia—one of the biggest energy producers in the world—fill its state coffers as it wages war against Ukraine.
Falling oil prices are often a pressure-release valve for the global economy, reducing costs as demand falls in a cycle that repeats itself. OPEC+ often holds itself out as a regulator of the oil market, aiming to keep supply and demand balanced, but a production cut would support prices at the same time they are at historically high levels.
Because the ultimate decision will be hotly debated, the group decided to meet in person in Vienna on Wednesday for the first time since the start of the pandemic, the delegates said. Other options being considered include a smaller reduction of 500,000 barrels a day or as much as 1.5 million barrels a day, the delegates said.
Russia and Saudi energy ministries didn’t immediately respond to requests for comment.
The option to cut more than 1 million barrels a day is backed by Russia, the group’s biggest non-OPEC partner. But the cartel’s biggest exporter, Saudi Arabia, has some reservations on the size of the cut, the delegates said.
The U.S. has asked OPEC+ to pump more oil to help bring down the price of gasoline. OPEC+ accelerated some production cuts over the summer ahead of President Biden’s visit to Saudi Arabia and made a small increase in August but has since worked to reverse those moves.
OPEC+ agreed last month to reduce oil production for the first time in more than a year, saying it would cut about 100,000 barrels a day amid fears of a global recession.
The move ended an 18-month era of production increases for OPEC+. The group slowly brought crude back onto the market after a sharp cut during the pandemic, when demand plunged.
The price of Brent crude, the global oil benchmark, is down 23% this quarter, falling to $87.96 a barrel last week amid its swiftest decline since 2020.
The Saudis have pursued a more aggressive oil policy this year as oil prices rose during the war in Ukraine. Higher oil prices have helped Saudi Arabia become one of the world’s fastest-growing economies this year, providing a cash infusion to an economic overhaul launched by Crown Prince Mohammed bin Salman, the kingdom’s de facto ruler.
In one way, an OPEC+ cut won’t make much meaningful difference in the day-to-day oil market. The group has been undershooting its targets by more than 3 million barrels a day for much of the year, with Russian production falling and large producers such as Nigeria and Angola struggling to invest enough to raise output.