OPEC+ considers the possibility of cutting oil production of more than a million barrels per day

For the first time in a few years, the Organization of the Petroleum Exporting Countries (OPEC+) will consider the possibility of oil output cutting of more than a million barrels per day. The issue will be discussed at an offline meeting in OPEC’s Vienna headquarters on October 5, 2022.

The oil output cutting above an expected level will represent the producer groups’ concern on a rapid slowdown in the economy caused by the tightening of monetary policy. According to delegates, a final decision won’t be made before the meeting on Wednesday. However, if it gets approved after, it’ll be the largest oil output cutting since the beginning of the COVID-19 pandemic.

Chief oil analyst at Energy Aspects Ltd, Amrita Sen, noted that “OPEC+ are mostly oriented on higher interest rates in the US and their influence on emerging-market demand”, and she also highlighted that “this way, the export countries are intended to prevent the global market from any possible surpluses”.

At the same time, such a significant oil production reducing might cause another turmoil in the global economy, which has already been fighting against inflation associated with the energy sector. The US and some other countries insist on the oil production increasing. For this reason, the US president, Joe Biden, has visited Saudi Arabia this summer in order to make a new oil deal and lower gasoline prices for Americans ahead of midterm elections in November.

Average gasoline prices in the US declined quickly after their peak level of more than $5 per gallon in June. Nevertheless, they’ve started to grow again over the past 10 days and reached the level of $3.80 per gallon.

Some banks, including JPMorgan Chase & Co., announced that OPEC+ may reduce the oil production at least by half a million barrels per day in order to stabilize prices. However, chief commodities strategist at RBC Capital Markets LLC, Helima Croft, assumed that this reduction may be twice as big as these numbers. Croft justified her concerns by the fact that the OPEC+ members decided to meet in person.

The Organization of Petroleum Exporting Countries and its partners – the alliance of 23 countries – have been meeting online monthly. It was expected to stay the same for the end of the year, but the fall in prices led to a change of their plans.

“Only OPEC+ can wake up oil prices from their current slumber,” – said figuratively Viktor Katona, an analyst at energy analytics firm Kpler in Vienna.