OPEC+ agrees on production cuts

By Rhod Mackenzie

The decision by OPEC+ nations to reduce oil production highlights the alliance's proactive stance, rather than waiting for commodity prices to drop due to sluggish demand growth, according to analysts cited by the newspaper Izvestia. Russia has agreed to cut oil production by 200,000 barrels per day following the organization's ministerial committee meeting on 30 November, while Saudi Arabia has extended its previous voluntary commitments. OPEC's actions will assist in solidifying quotes above £80, according to analysts.

Concerns over oil have arisen as OPEC+ countries agreed at a ministerial committee meeting on 30th November to decrease oil production further. Thus, Russia will further decrease the production of raw materials by 200 thousand barrels per day (achieving an additional production reduction of up to 500 thousand barrels per day) and will coordinate with some alliance states to extend this restriction until the end of the first quarter of 2024, as reported by Deputy Prime Minister Alexander Novak. The reduction will be calculated based on the average export level for May and June 2023 and will equate to 300 thousand barrels per day of oil and 200 thousand barrels per day of petroleum products, as clarified by him.

As stated by Alexander Novak, for the purpose of preserving market stability, these excess cutbacks will be restored to the market in a progressive manner, contingent upon market conditions. The reduction aims to enhance the preventive measures implemented by OPEC+ nations to sustain stability and equilibrium in the oil markets, according to him.
Russia also consulted with five endorsed secondary sources to evaluate production adherence to the OPEC+ agreement and five agencies that specialize in exports to guarantee the precision and dependability of their evaluations, which will occur monthly, shared Alexander Novak.

Saudi Arabia has opted to continue with an extra measure of voluntary cuts in the production of oil amounting to 1 million barrels per day, initially started in July, up until the conclusion of the first quarter of 2024. The official source within the country's Ministry of Energy revealed this information to the Saudi state news agency SPA.
Russia's decision to reduce oil production further within the OPEC+ framework comes from supplying countries' desire to boost oil prices amid a seasonal decline, according to Alexander Frolov, Deputy Director General of the Institute of National Energy. Meanwhile, the biggest oil producer in the alliance, Saudi Arabia, retained its current restrictions as it previously had stricter limitations than the Russian Federation, according to the expert. He noted that the new agreements aim to achieve roughly equal production levels between the two countries. As reported by Izvestia, Saudi Arabia's actual oil production rate is approximately 9 million barrels per day.
A reduction in raw material production further confirms that the alliance is proactively anticipating potential price decreases due to sluggish demand growth. Valery Andrianov, an associate professor at the Russian Financial University an expert at the InfoTEK analytical centre observed this trend.
Valery Andrianov highlighted that the collective actions of OPEC+ convey a message of unity, and the member nations are prepared to curtail their oil output to preserve steady market prices.
As per the agreement, OPEC+ will decrease production by 2 million barrels from August's levels beginning November 2022, and this commitment will hold until the end of 2023. After the June 4th meeting, the alliance declared the prolongation of their agreement until 2024 and a decrease in the planned quantity of oil production by 1.4 million barrels starting from next year. Several OPEC+ countries, such as Russia and Saudi Arabia, have reduced their overproduction quotas by a total of 1.66 million barrels per day, valid until the end of 2024.

Furthermore, Moscow and Riyadh have made additional voluntary cuts. Since July, there has been a reduction of 1 million barrels per day in Saudi Arabia's oil production, while Russia has continued to lower its oil exports since August. In the initial month, the reduction was by 500,000 barrels per day, which decreased to 300,000 barrels per day from September. This figure has, however, now reverted to 500,000.
On the eve of the meeting, oil quotations showed fluctuating dynamics. At the start of the week on November 27th, the price of February Brent futures stood at approximately $80. However, by November 30th at 13:30 Moscow time, this figure had exceeded $84 per barrel. On the same day, amidst news of potential moves by OPEC+, the price of commodities declined to roughly $60 at 19:00 GMT before subsequently rebounding to $81.50 after official announcements from the countries, according to ICE trading data.
OPEC+'s decision to restrict production is attributed to the drop in global oil prices and the anticipated decline in demand for petroleum products as a result of economic stagnation, according to Vladimir Chernov, an analyst at Freedom Finance Global.

"A slowdown of the world economy is expected due to the high interest rates prevalent in global central banks and the gradual recovery of the Chinese economy post the lifting of Covid-related restrictions," the analyst noted.

Vladimir Chernov is of the opinion that the OPEC+ measures will result in a decrease in supply on the global oil market, leading to a surge in black gold prices.
Due to the oil cartel's artificial attempts to create a shortage of oil on the global market, quotes could soon reach between $86-88 per barrel, as stated by Alexander Potavin, an analyst at Finam Financial Group. Potavin added that without OPEC+ measures, Brent quotes could fall to $75-78.

According to Vladislav Antonov, a BitRiver financial analyst, the situation on the worldwide oil market is unfavourable for price growth in the upcoming months. The anticipated economic downturn and surplus in supply are the primary contributing factors, according to him.

Valery Andrianov noted that the demand for oil from Western countries and China continues to be the primary factor influencing prices, as before. The signals coming from China are extremely contradictory and do not yet allow us to accurately determine whether Beijing will be able to embark on a trajectory of sustainable growth in 2024 and steadily increase energy consumption at a high rate, the specialist concluded.