OPEC+ members are meeting virtually today to discuss crude production levels. Several delegates have said the group is discussing additional output cuts of about 1 million bpd.
The monthly meeting of OPEC+ was pushed back to today from last Sunday as a rift developed among OPEC+ members regarding crude production levels. Saudi Arabia, which has unilaterally cut its crude output by 1.0 million bpd since July, is now asking other OPEC+ members to reduce their oil production levels, which has prompted pushback from some African oil producers, including Angola and Nigeria.
Saudi Arabia has been pressing fellow OPEC+ members to cooperate to restrain crude supplies in order to stave off an expected oil surplus next year. Delegates said members are discussing a collective reduction of -1.0 million bpd that would be combined with the extension of Saudi Arabia’s voluntary cutback of -1.0 million bpd that began in July. A deal to cut production by -1.0 million bpd would actually be only half as big in real terms because some countries are already pumping below their targets.
The main obstacle in reaching a new production agreement among OPEC+ is a dispute over whether African members Angola and Nigeria should accept reduced output levels to reflect their diminished production capabilities. When OPEC+ last met in June, Angola and Nigeria were assigned lower production levels for 2024, which reflected their reduced production capacity. They were granted a review of their output levels and now have pushed back against a reduction. Last month, Nigeria pumped 1.416 million bpd, or 36,000 bpd above its target for 2024. However, Angola pumped only 1.17 million bpd in October, more than 100,000 bpd under its 2024 quota.
RBC Capital Markets said, “Before they can turn to talks on deeper production cuts, OPEC+ will have to resolve the unfinished business from the June meeting.” Delegates said a failure to resolve the issue and agree to a deeper cut could result in a rollover of current production levels. Rapidan Energy Group LLC said, “The market wants to know whether or not the policy of OPEC+ will be preemptive and proactive with supply management in place. Without real production cuts, the global oil market will look to be oversupplied, casting a bearish pall over the near-term price outlook.”
The absence of an OPEC+ agreement on production for next year would leave global oil markets in a quandary, with crude prices down about -13% from a September peak as demand growth slows and global inventory levels not falling as much as expected. If Saudi Arabia were to reverse its voluntary cuts, crude oil prices would most likely sell off sharply.
S&P Global Commodity Insights said, “When you look ahead to the next few months, we see a significant global oil supply surplus, which assumes that the current cuts are prolonged into next year. If the cuts are not maintained or deepened, the reaction in the oil market could be quite severe.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
