OPEC + agrees to a small cut in oil production

A picture of the emblem of the Organization of the Petroleum Exporting Countries (OPEC) at its headquarters in Vienna, Austria, August 21, 2015. REUTERS/Heinz Peter Baer/File Photo

LONDON (Reuters) – OPEC and its allies led by Russia agreed on Monday to slightly reduce oil production to support prices that have fallen on fears of an economic slowdown.

Oil producers will cut production by 100,000 barrels per day, or just 0.1% of global demand, for the month of October. They also agreed that Saudi Arabia, the leader of OPEC, could call an extraordinary meeting at any time if volatility continued. Read more

The decision essentially maintains the status quo as OPEC has been noticing extreme fluctuations in oil prices.

Matthew Holland of Energy Aspects said: “OPEC+ is wary of prolonged price volatility caused by weak macroeconomic sentiment, poor liquidity, renewed shutdowns with China, as well as uncertainty over a potential US-Iran deal and efforts to cap Russian oil prices. “.

Saudi Arabia, the largest producer in the Organization of the Petroleum Exporting Countries (OPEC), last month signaled the possibility of cutting production to tackle what it sees as exaggerated moves in oil prices. Read more

Benchmark Brent crude has fallen to around $95 a barrel from $120 in June on fears of an economic slowdown and recession in the West.

Russian Deputy Prime Minister Alexander Novak said on Monday that the OPEC+ oil production cut was merely a reflection of weak global economic growth expectations.

Oil prices have also fallen due to a possible increase in the supply of Iranian crude returning to the market if Tehran can revive its 2015 nuclear deal with world powers.

“The political angle seems to be a Saudi message to the United States about reviving the Iran nuclear deal,” said Tamas Varga of oil brokerage BVM. “It is difficult to interpret the decision as anything that is not supportive of the price.”

Iran is expected to add 1 million barrels per day to supplies, or 1% of global demand, if sanctions are eased, although prospects for a nuclear deal appeared less clear on Friday. Read more

The White House said Monday that US President Joe Biden is committed to taking all necessary steps to support energy supplies and lower prices.

“The cut indicates that there is a desire to defend oil prices to stay above $90 a barrel,” said Giovanni Stonovo of UBS.

“It’s a signal of intent…the decision to cut reinforces the message of ‘don’t take us for granted’ without doing anything drastic,” said Raad al-Qadri of Eurasia Group.

However, signs from the physical market suggest that supply remains tight and many OPEC countries are producing below targets while new Western sanctions threaten Russian exports.

Russia has said it will stop supplying countries that support the idea of ​​capping Russian energy supplies due to its military conflict in Ukraine.

Meanwhile, deliveries of Russian gas in Europe have been further reduced, which is likely to lead to a further price surge. Read more

“Cutting production will not make them any friends at a time when the world is facing a cost-of-living crisis,” said analyst Craig Erlam at OANDA.

Additional reporting by Rowena Edwards and Olesya Astakhova.

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