Saudi Arabia marks the step in OPEC+ with additional cut in its crude production

Saudi Arabia committed to new production cuts oil, marking the pace of the meeting of the alliance of oil exporting countries OPEC+ meeting this Sunday in Vienna to work out a strategy to boost prices, badly hurt by fears of a recession.

The meeting of the thirteen members of the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia and which includes Venezuela, along with its ten partners, led by Russia, was marked by difficult negotiations and divergent interests between countries. .

Saudi Arabia’s Energy Minister, Abdel Aziz bin Salmán, reported after the meeting that his country is committed to a cut of an additional one million barrels per day (mbd) of its production starting in July, but that this reduction “may be extended”. “We wanted to put the icing on the cake,” he boasted.

The other important announcement of the oil cartel is that the voluntary cuts in production adopted by nine countries of this pact for a total of 1.6 mbd that came into force in May “will be extended until the end of 2024,” he said at the exit of The meeting was attended by the Russian Deputy Prime Minister, in charge of the Energy portfolio, Alexander Novak.

The meeting at OPEC headquarters began almost three hours later than expected and the negotiation was arduous among this group of countries responsible for 60% of world crude oil production.

“We managed to agree”

ORA key subject of the negotiation was the production base because it is used to calculate the pumping quotas by country and thus be able to configure a joint cut. The United Arab Emirates, which advocated higher production, managed to increase the base on which its pumping quota is calculated for 2024.

According to the Bloomberg agency, this increase generated reluctance from African countries such as Angola, Congo and Nigeria, whose quotas were cut for next year.

These African countries are producing at full capacity but are barely meeting their output targets and are now under added pressure. Finally, “we managed to reach an agreement,” Jean-Richard Itoua, Congolese Minister of Hydrocarbons, commented at the exit.

The meeting was held two months after several of the countries in this cartel announced a voluntary cut in their production quotas to boost prices, a decision that came into force in May, but which had a short-lived effect and did not stop the drop in prices.

Despite the fact that oil prices have rebounded in the last two trading days, prices have fallen 10% since the surprise announcement in early April. Brent, which is the reference in Europe, is at 76 dollars a barrel and the US WTI marker is trading at 71 dollars, far from the levels reached in March 2022 at the start of the war in Ukraine, when they reached around 140 dollars a barrel.

Crude producers met at a time when the market is haunted by the impact of inflation, monetary tightening, a less fluid than expected recovery in Chinese demand and various turbulences that have affected the financial system. ”This measure will add limited upward pressure to prices in the coming weeks, according to our projections”pointed out in a note the Vice President of Rystad Energy, Jorge Leon.

– An image of unity –

He Minister of Petroleum of VenezuelaPedro Tellecheasaid on Twitter after the end of the meeting that his country reiterated its commitment to support “measures that seek stability in the energy market.”

Before the meeting there was speculation about whether Saudi Arabia and Russia would clash over their differences and dissimilar interests, but the OPEC+ meeting closed showing a united front.

“They once again showed that they work together (…) In the end, it’s about what they agree on,” said Giovanni Staunovo, an analyst at UBS, who added that “the important thing was to show unity”

Russia is reluctant to turn off the oil tap, which provides Moscow with revenue to finance its military offensive in Ukraine. Due to sanctions by Western powers, Russian crude can only be traded at $60 or less.

“In contrast, Saudi Arabia needs higher prices to balance its budget,” Barbara Lambrecht, an analyst at Commerzbank, said in a note. The Russian minister was blunt: “We have no disagreements. This is a joint decision made in the interest of the market.”

Prepared with information from AFP