OPEC and its allies on Oct. 5 slashed their production quotas by 2 million b/d for the next 14 months in a bid to stabilize sliding oil prices, provoking a strong backlash from the US, which had warned the group to avoid a potential supply squeeze and distance itself from Russia.
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The new quotas, which start in November and will remain in place through December 2023, were agreed at the OPEC+ alliance's first in-person meeting since March 2020 in Vienna.
Due to the fact that many members, including Russia, are vastly underproducing their quotas already, the actual amount of oil being removed from the market will be much smaller -- roughly 800,000 b/d, according to S&P Global Commodity Insights calculations, most of it borne by Saudi Arabia and the UAE.
Still, the production curbs would be the largest since the alliance instituted a historic 9.7 million b/d cut to rescue prices from the pandemic crash in May 2020 that was gradually unwound through September 2022.
The producer group is seeking to "send an unambiguous message to the market about a willingness to reduce supply to support rising price objectives," S&P Global analysts Paul Sheldon and Shin Kim said in a note.
Crude oil futures rose after of the OPEC+ decision, with the ICE December Brent contract at $93.03/b as of 1628 GMT, a rise of almost 10% since the end of September.
Platts, part of S&P Global, assessed the Dated Brent physical crude price at $93.73/b on Oct. 4, up 11% from $84.63/b on Sept. 26, when rumors of an OPEC+ cut began swirling. But the benchmark is still down from a June 14 peak of $132.06/b, amid market concerns over a widespread recession.
OPEC+ ministers pointed to projections of a slowdown in global GDP and the impact of aggressive central bank interest rate hikes in defending their cuts.
"We have always opted for making sure we are attentive to the market," Saudi energy minister Prince Abdulaziz bin Salman said in a post-meeting press conference. "To be attentive, you have to be preemptive and certainly ahead of the curve, which means you have to be proactive."
UAE counterpart Suhail al-Mazrouei added that the alliance was "concerned by a demand fall."
The decision is sure to further inflame tensions between OPEC's core Gulf states and lapsed ally the US, as the producer group further cements ties with Western pariah Russia. Ministers announced after their meeting that the OPEC+ Declaration of Cooperation was extended through the end of 2023, having previously been set to expire after 2022.
US officials condemned the decision as "shortsighted," having warned the group not to create conditions that could squeeze oil prices, ahead of the November congressional elections.
"At a time when maintaining a global supply of energy is of paramount importance, this decision will have the most negative impact on lower- and middle-income countries that are already reeling from elevated energy prices," White House National Security Advisor Jake Sullivan and National Economic Council Director Brian Deese said in a joint statement.
They added that the Biden administration would consult with Congress on potential measures that would strike at OPEC's control over oil prices. That could include a revived "NOPEC" bill that would allow the producer group to be sued in US courts for antitrust violations.
But OPEC+ officials said their policymaking was not political.
Prince Abdulaziz said OPEC had been working with Russia since the Declaration of Cooperation was signed in late 2016 and that there were no "ill intentions" behind the quota cut. He pointed out that the Brent crude benchmark had only risen 6% from January to September, while other critical energy commodities had seen a doubling or more in prices.
OPEC Secretary General Haitham al-Ghais, who took office in August, said that the organization has an "open door" for dialogue with consuming nations, but "I'm waiting for someone to knock on that door."
"We are not endangering the energy markets. We are providing security, stability to the energy markets," he added. "Everything has a price. Energy security has a price."
Any cuts would come as the US' 1 million b/d releases from its Strategic Petroleum Reserve are scheduled to end in October, potentially exacerbating a tight market if global oil demand holds up.
As well, an EU ban on seaborne imports of Russian crude is scheduled to go into effect Dec. 5, while the G7 continues to wield the threat of a potential price cap on Russian exports. S&P Global analysts forecast Russian losses to peak at 1.5 million b/d in Q1 2023.
Russian Deputy Prime Minister Alexander Novak was in attendance at the meeting in Vienna, though he did not participate in the press conference.
The next OPEC+ meeting was set for Dec. 4, though to smooth over market volatility that has surrounded the group's decision-making, ministers said they will move away from monthly gatherings to convene every six months.
A nine-country ministerial monitoring committee co-chaired by Saudi Arabia and Russia will now meet every two months, instead of monthly.
"We wanted to give the market guidance," Prince Abdulaziz said, explaining the decision to implement the quota cut through December 2023. "As it is today, we feel much more assured we should give that comfort to the market for the 14 months. If things change, we will tweak."
|OPEC||Aug output||Nov 22-Dec 23 quota||Difference|
|NON-OPEC||Aug output||Nov quota||Difference|
Unit: million b/d
Source: Platts OPEC+ survey by S&P Global Commodity Insights, OPEC+
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