The decision was adopted at a ministerial conference of the Organization of Petroleum Exporting Countries (OPEC) and its ten allied producing nations – including Russia, Mexico and Kazakhstan – in Vienna, which was the group’s first face-to-face meeting since the start of the covid pandemic.
The OPEC+ alliance, led by Saudi Arabia and Russia, decided this Wednesday in Vienna to reduce its output by 2 million barrels per day (mbd), the largest cut in oil supply since May 2020.
In addition, the participating ministers agreed to extend their cooperation for another year, with which the aforementioned alliance, forged in 2016 to face the fall in “petroprices” caused by the shale boom in the US, will last until at least the end of 2023.
In their final declaration, they specify that they have agreed “adjust global production downwards by 2 mbd (…) starting in November”.
Actual cut lower than official
Nominally, this volume is equivalent to 2% of the world supply of crude oil and is regarding double what was expected until Tuesday in international markets, but in physical reality it will be predictably less, although equally important.
The reason is that most producers are already pumping less than the established national quota due to technical capacity problems stemming from insufficient investment.
Thus, it is estimated that as a whole the alliance pumps between 3.5 and 4 mbd below the total quota established for October, of 43.85 million barrels per day (mbd), which includes the pumping of 20 countries (All except OPEC members Venezuela, Iran and Libya, which are exempt from the commitment to limit their extractions).
“We will not cut 2 mbd, but we will strive in that direction”, admitted the current president of OPEC, Bruno Jean-Richard Itoua, at a press conference.
After highlighting that an attempt has been made to adjust the quotas to the capacity of each country, he estimated that the real cut will be “something between one and two million” barrels per day.
OPEC+ turns a deaf ear to the West
Even though the real cut will ultimately be less than the one announced, the measure represents a clear “no” to the Western nations that have been asking OPEC for a long time to open the taps to make fuel and energy cheaper, and thus curb inflation, in the midst of the current energy crisis.
Through a statement from his National Security Advisor, Jake Sullivan, and your financial adviser Brian Deese, the president of the USA, Joe Biden, today described OPEC +’s decision as “short-term” when “the global economy continues to face the continued negative impact” of the Russian invasion of Ukraine.
At a press conference in Vienna, the Saudi Minister of Energy, Abdelaziz bin Salman, He refused to answer a question from Efe regarding OPEC+’s position towards that US reaction.
Attract capital for oil
All the ministers present agreed to reiterate that the group only has technical considerations, and not political ones, when making its decisions, and defended the cut with the argument that they want to attract investment to the sector.
“We are not endangering the energy market. We are supplying security and stability to the energy market”, declared the Secretary General of OPEC at a press conference, Haitham Al Ghais.
“What we are doing is ensuring that there is more oil on the market for years to come, it is not a short-term issue,” said the Emirati minister, Suhail al Mazrouei.
His Saudi colleague admitted “frustration” among producers due to the uncertainties created by policies foreign to them, and insinuated that one of them is the possible cap on the price of Russian oil proposed by the G7.
“We don’t know what will happen with the (EU’s) embargo on Russian oil” nor with the decisions of the central banks (of raising interest rates) in “with the lockdowns in China”, he said, describing the current situation as “extremely complex”.
The expectation of OPEC+ production cuts has already driven a sharp increase in the price of “black gold” in recent days and today prices continued their upward path following learning of the decision adopted in Vienna.
In the London market Brent oil ended at $93.48 a barrel, with a rise of 1.83% compared to yesterday’s close and 6.29% since Monday.
Analysts expect the Brent price to rise above $100/barrel once more in the coming months.
OPEC+ will meet once more on December 4.
