Riyadh announced on Sunday that it would cut production by a further one million barrels per day in a bid to prop up prices despite fears of a recession.
The announcement came after a meeting of the 13-member Organization of the Petroleum Exporting Countries (OPEC) chaired by Saudi Arabia and its 10 partners led by Russia.
The cuts are for July but “could be extended”, Saudi Energy Minister Prince Abdulaziz bin Salman told reporters.
It is a “voluntary” cut announced after an hours-long OPEC+ meeting at the group’s headquarters in Vienna that saw some difficult negotiations.
Analysts had largely expected OPEC+ producers to maintain their current policy, but signs emerged this weekend that the 23 countries could make deeper cuts.
According to a source close to the talks, a production cut of one million barrels per day (bpd) was being discussed.
In April, several OPEC+ members agreed to voluntarily cut production by more than a million bpd – a surprise move that temporarily held prices down but failed to bring about a lasting recovery.
– Battle over quotas –
Bloomberg news agency reported fighting with African members of the group, which threatened to derail the gathering.
While the United Arab Emirates was pushing for changes to the way its output cuts are measured, African countries were reluctant to give up some of their unused quotas – a politically unachievable option, it said, citing delegates.
Several OPEC+ countries—including Angola and Nigeria—which are already operating at maximum capacity—are struggling to meet their quotas.
Oil producers are grappling with falling prices and high market volatility amid the Russian invasion of Ukraine, which has hammered economies around the world.
Oil prices have fallen by about 10 percent since the cut was announced in April, with Brent crude falling to near $70 a barrel, a level it has not traded below since December 2021.
Traders worry that demand will weigh on concerns about the health of the global economy, as the United States grapples with inflation and high interest rates, while China’s post-Covid rebound falters.
– ‘No disagreement’ –
Russia’s Deputy Prime Minister Alexander Novak said the current production cuts are being extended until the end of 2024 after a “prolonged” investigation into the matter.
Russia is dependent on oil revenue as its war in Ukraine continues and Western sanctions hammer its economy.
Novak “sees no need for OPEC+ to change course” because it would hardly benefit from higher prices, Commerzbank commodity analysts said in a research note ahead of the meeting.
As Western sanctions hit Moscow over Ukraine, Russia has been sending oil to India and China as the Asian giants absorb cheap crude.
Saudi Arabia, on the other hand, “needs higher prices to balance its budget”, Commerzbank analysts said, adding that the kingdom’s break-even price currently stands at a “good $80 a barrel”.
Despite tensions, both of OPEC+’s top producers “will no doubt be keen to keep the cartel together, as it has more power thanks to a united front”, he said.
In March 2020, the coalition was on the brink of collapse after Moscow refused to cut oil production, while the Covid pandemic sent prices into freefall.
After talks broke down, Riyadh flooded the market with exports increasing to record levels before an agreement was reached between the two countries.
Asked if there was a disagreement with Saudi Arabia this weekend, Novak said, “No, we didn’t have any disagreement, it’s a normal decision.”
OPEC+ countries produce about 60 percent of the world’s oil.
(This story has not been edited by News18 staff and is published from a syndicated news agency feed – AFP,