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OPEC+ Considers Deepening Oil Output Cuts Amid Falling Prices

OPEC+ embarks on a two-day meeting that could reduce oil production by an additional million barrels per day in response to falling prices.

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Anticipated Oil Production Cuts

OPEC+, comprising the Organization of the Petroleum Exporting Countries and its allies, led by Russia, has launched a two-day discussion session that may further slash oil production by up to 1 million barrels per day. According to insider sources, this move comes amid sagging oil prices and an imminent supply glut. Notably, the decisions made by OPEC+, responsible for approximately 40% of the world's oil supply, significantly influence global oil prices.

Possible Outcomes from the OPEC+ Meetings

Multiple sources revealed that production cuts are on the discussion table for the meeting scheduled on Sunday when OPEC+ ministers convene in Vienna. Proposed reductions might add up to 1 million barrels per day to existing cuts, which currently stand at 2 million bpd. Additionally, there were voluntary cuts of 1.6 million bpd announced in a surprising move in April, which were implemented in May. If sanctioned, this would bring the total reductions to around 4.5% of global demand, equivalent to 4.66 million bpd.

Responding to Western Accusations

Western nations have frequently criticized OPEC for manipulating oil prices, leading to higher energy costs and destabilizing the global economy. Furthermore, they have accused OPEC of aligning closely with Russia, ignoring the Western sanctions imposed on Moscow following its invasion of Ukraine. As a counterargument, OPEC officials highlighted the West's rampant money-printing in recent years as a significant factor driving inflation and pushing oil-producing nations to safeguard the value of their primary export.

Anticipation for Balanced Supply and Demand

UAE's Energy Minister Suhail Al Mazroui anticipated a resolution to ensure a sustainable balance between supply and demand. However, global economic growth and demand concerns exerted pressure on oil prices, despite a surprise output cut announcement in April that temporarily spiked the prices. As of Friday, the international benchmark Brent settled at $76.

Mixed Expectations on OPEC+ Decisions

While Saudi Arabia's Energy Minister, Prince Abdulaziz, issued a warning to investors betting on a price fall, Russian Deputy Prime Minister Alexander Novak expressed no expectation for any new steps from OPEC+ in Vienna. Meanwhile, market analysts at JPMorgan believe that OPEC+ needs to move more swiftly to regulate supply in the face of record-high U.S. output and higher-than-expected Russian exports. They concluded, "There is simply too much supply," suggesting additional cuts of around 1 million bpd could be necessary.

Future Prospects for Global Oil Demand

The International Energy Agency projects a surge in global oil demand in the second half of 2023, potentially propelling oil prices upward. However, despite these forecasts, Edward Moya from brokerage firm OANDA expressed skepticism about achieving consensus on further output cuts between Saudi Arabia and Russia. Nevertheless, he urged market traders to "never underestimate what the Saudis will do and leverage during OPEC+ meetings."