OPEC+ weighing largest output cuts since 2020 crisis

The OPEC+ group of oil-producing countries and their allies is discussing output cuts of more than 1 million barrels per day (bpd), OPEC sources inform. Further, voluntary cuts by individual members could come on top of that, making it their largest cut since 2020.

The group is set to meet on October 5 in Vienna in person for the first time since March 2020. OPEC+, which combines OPEC countries and their allies such as Russia, has been gradually raising its output target to unwind the record cuts it made in 2020.

Now the organisation recorded a sharp fall in prices, which have dropped below USD 90 per barrel from as high as USD 120 in the last months due to fears about the state global economy and a rise of the US dollar after the Federal Reserve increased rates.

“It may be as significant as the April 2020 meeting,” the source informed Reuters, referring to when OPEC+ agreed to cut supplies of around 10 million bpd, or 10 percent of global output, as the COVID-19 pandemic slashed demand.

A significant cut will likely affect the United States, which has been pressuring Saudi Arabia to continue pumping more to help oil prices to drop and to create extra pressure on Moscow that continues its aggression against Ukraine.

Saudi Arabia has not yet condemned Moscow's aggressive actions amid difficult relations with US President Joe Biden’s administration.

Last week, a source claiming to understand the Russian plans said Moscow would like to see OPEC+ cut its output target by 1 million barrels per day (bpd) or 1 percent of global supply.

On Sunday, sources confirmed the cuts might exceed 1 million bpd.

On Monday, one of the OPEC sources said voluntary cuts by individual members of the organisation will add to the final figure. In previous years only Saudi Arabia has offered voluntary cuts to give an additional boost to the oil markets.

“My instinct is that if they (OPEC+) have suggested a cut and prices are still going down, they will have to do it and a bigger one than they wanted,” said Raad Alkadiri, managing director at Eurasia Group.

Stephen Brennock at PVM said fears of a demand-sapping recession are pushing OPEC+ to take preemptive action.

“It must be noted that OPEC+ is already pumping more than 3 million bpd below its target, hence any further cuts will only exacerbate the existing supply tightness,” he concluded.