The Kingdom of Saudi Arabia confirmed that the decision of the “OPEC+” alliance of oil-producing countries on Monday to make the first production cut in more than a year, confirms its seriousness in managing crude oil markets and its desire to take proactive moves in the market.
The Organization of Petroleum Exporting Countries (OPEC) and its allies (including Russia) decided on Monday to reduce production in October by 100,000 barrels per day to support prices in the face of fears of deflation, and this for the first time in more than a year and following cuts occurring due to the Covid-19 epidemic.
“Bloomberg” quoted Saudi Energy Minister Prince Abdulaziz bin Salman in an interview that the decision of OPEC+ “is an expression of the desire to use all the tools available to us” in managing the crude oil market globally, after the decision of “OPEC +” to reduce the production of member states by 100,000 barrels per day, starting from the beginning of next month, after several months of steadily increasing production.
Bin Salman added that the slight reduction in production shows that “we will be vigilant, proactive and active in moving to support stability and effectiveness in the market’s performance.”
The decision to cut “OPEC+” production came as a surprise to many market dealers, who expected to maintain production levels, in light of the price of crude oil remaining above $90 a barrel, which represents a strong pressure on consumers.
The market also expects a new decline in supplies in the coming months, with the decision of the finance ministers of the Group of Seven major industrialized countries to set a ceiling for the price of Russian crude oil, starting next December, within the framework of Western sanctions targeting Russia in response to its invasion of Ukraine.
“OPEC+” said in a statement that “the ministerial meeting of OPEC and non-members indicated the negative impact of volatility, low liquidity in the current oil market and the need to support market stability and its efficient functioning.”
Russia
For his part, Russian Deputy Prime Minister Alexander Novak told Rossiya 24 TV channel in response to a question about possible additional cuts by the alliance, that “OPEC+” does not target any price levels, but rather seeks to achieve a balance in the market, whether it is a deficit or a surplus.
“The decision showed that we have a flexible tool that allows taking into account the need to increase or decrease production,” Novak said. He added that the group will continue to monitor market developments, and pointed to many concerns, including the production of non-OPEC countries and the planned price ceiling for Russian oil.
On the last point, Russian Energy Minister Nikolai Shulginov told reporters at the Eastern Economic Forum in Vladivostok, today, Tuesday, that Russia will respond to capping Russian oil prices by shipping more supplies to Asia. “Any measures to impose a price ceiling will lead to a market deficit (for countries that implement this) and will increase price volatility,” he said.
The finance ministers of the US, Germany, Italy, Japan, Britain, France, and Canada gave the green light last week to the idea of capping the price of Russian crude to cut Moscow’s revenue in response to its invasion of Ukraine.
Biden
The “OPEC+” move angered the US because it had pressured the alliance to increase production in order to reduce the energy prices fueling inflation which reached its highest levels in decades.
The White House announced that US President Joe Biden is committed to taking all necessary steps to boost energy supplies and lower prices. “The president has been clear that energy supplies must meet demand to support economic growth and lower prices for American consumers and consumers around the world,” White House spokeswoman Karen-Jean-Pierre said in a statement.
The prices
Brent oil prices fell early on Tuesday, paring the previous day’s 3 percent gain. Brent crude futures fell 33 cents, or 0.3 percent, to $95.44 a barrel. US West Texas Intermediate crude futures rose to $89.13 a barrel, and increased by $2.26, or 2.6 percent, from Friday’s close.
