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OPEC+ Agrees to Significant Oil-Production Cut – WSJ

The headquarters of the Organization of the Petroleum Exporting Countries in Vienna. Thursday’s move by OPEC and its Russia-led allies could draw a rebuke from the U.S. Photo: Andrey Rudakov/Bloomberg News
Production will be cut by an additional million barrels a day, a move likely to keep prices elevated. The headquarters of the Organization of the Petroleum Exporting Countries in Vienna. Thursday’s move by OPEC and its Russia-led allies could draw a rebuke from the U.S. (Andrey Rudakov/Bloomberg)

Summer Said and Benoit Faucon, WSJ

LONDON
EnergiesNet.com 12 01 2023

OPEC+ agreed to a significant production cut of an additional million barrels a day, delegates said, in a move that will likely keep prices elevated amid the continuing conflict in the Middle East.

As part of the deal reached Thursday, Saudi Arabia also agreed to extend its cut of 1 million barrels a day that it announced in June.

Taken together, the moves are expected to stabilize prices at a moment when geopolitical tensions are high around the world and economic growth is slowing.

The voluntary cuts could draw a rebuke from the U.S., which slammed the 13-strong Organization of the Petroleum Exporting Countries and its 10 Russia-led allies for agreeing to a cut of 2 million barrels a day last year. The White House at the time called the decision by the so-called OPEC+ alliance shortsighted and suggested the group was actively supporting Russia’s invasion of Ukraine.

Thursday’s decision comes against a similarly tense backdrop. Arab nations such as Saudi Arabia have been critical of an offensive in Gaza by Israel, where thousands have died and large neighborhoods have been reduced to rubble. The operation was launched in response to Palestinian militant attacks on Oct. 7 on Israel, which the U.S. has backed militarily.

Brent, the most widely traded oil contract, was roughly flat on Thursday at around $83 a barrel, after dropping for most of the past month. The price initially jumped after the cuts were reported, but analysts said some traders are concerned that they won’t be strictly enforced because they are voluntary.

After The Wall Street Journal on Wednesday reported the possibility of an extra 1 million-barrel cut, analysts said they expected such an effort would keep oil prices above $80 but likely not higher than $90 for a significant period.

OPEC’s meeting, typically held in Vienna, was conducted virtually after being delayed last week due to disagreements over the cuts. The meeting involved heated debate over the size of the proposed cuts and how they would be distributed among members, delegates said.

The exact details of the compromise, if any, weren’t clear. But ahead of the meeting, Saudi Arabia, the world’s biggest oil producer, pushed for the new cuts because of recent weakness in oil prices and concerns about low crude consumption.

Brent, the most widely traded oil contract, was roughly flat on Thursday at around $83 a barrel, after a brief jump on news of the cuts, with some traders expecting that they won’t be strictly enforced. (Olivier Chassignole/AFP)
Brent, the most widely traded oil contract, was roughly flat on Thursday at around $83 a barrel, after a brief jump on news of the cuts, with some traders expecting that they won’t be strictly enforced. (Olivier Chassignole/AFP)

The cut was to “preemptively clear potential demand weakness in the first half of next year,” said ’s head of energy strategy, Christyan Malek, who said, “It is about removing the speculators out of the equation to mitigate oil price volatility.”

Saudi Arabia, which has embarked on an ambitious program of projects, including a giant new city in the desert, needs a fiscal break-even oil price of as much as $88 a barrel, according to Goldman Sachs.

As is sometimes the case with the fractious cartel, the decision as announced lacked detail and therefore some of its exact effects aren’t immediately clear.

Nigeria and Angola, the two biggest African oil producers, had been resisting a change of their individual quotas, which OPEC-commissioned reports say overstate their production capacity, the delegates said. In the end, Nigeria agreed to amend its allocation but not Angola. Yet OPEC still decided to account for a cut of 180,000 barrels a day for Angola, the delegates said.

The United Arab Emirates was also reluctant to cut output, they said.

Despite the strains, the cartel and its allies agreed Thursday to bring in Brazil, South America’s largest oil producer, as a new member of OPEC+, the delegates said. Brazil, whose output has been growing steadily in recent years, pumped 2.318 million barrels a day in the third quarter.

Brazil hasn’t yet made a decision on whether to accept the invitation, according to a government spokesman.

Geopolitical tensions have spiraled beyond Israel and the Palestinian territories. An Israeli-connected ship was recently seized by Yemeni rebels who said they targeted the vessel because of Israel’s attacks on Gaza. Militias in Iraq—OPEC’s second-largest producer—have exchanged fire with U.S. Army bases.

The OPEC meeting also took place as global industry and political leaders are arriving in Dubai for the United Nations climate summit, where the role of major oil-producing countries in reducing emissions will again be a significant topic of discussion.

Oil prices have been weakening as analysts and investors brace for a slowdown in economic growth next year. The Organization for the Cooperation and Economic Development projects that global growth will slow to 2.7% in 2024, as the effects of tighter monetary policy are increasingly felt. That is expected to weigh on energy demand.

The Brent benchmark has fallen for the past five weeks, reaching a low of $77.42 a barrel in mid-November. The conflict in Gaza briefly propped up prices, but most traders determined that it is unlikely to affect the region’s oil supply.

The decision on Thursday “essentially shows the group wants to prevent the oil market from being oversupplied, keep control of oil market fundamentals, and keep playing the role of central bank in oil markets,” said Giovanni Staunovo, commodity analyst at UBS. He said most of the market reaction to the cuts was already baked into the oil price, and didn’t anticipate a sharp jump soon.

Anna Hirtenstein and Luciana Magalhaes contributed to this article.

Write to Summer Said at summer.said@wsj.com and Benoit Faucon at benoit.faucon@wsj.com

wsj.com 11 30 2023

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