OPEC+ considering 1 million bpd oil output on June 4: Report

The Organization of the Petroleum Exporting Countries and its allies or OPEC+ are discussing deepening oil production cuts, possibly by as much as 1 million barrels per day (bpd) on June 4, according to a report by news agency Reuters. Oil prices declined towards $70 per barrel and market analysts foresee a new supply glut. The oil producing cartel pumps around 40 per cent of the world’s total crude and its policy decisions tend to impact oil prices and its movements.

OPEC ministers met at 11 am on June 3 where cuts were being discussed among options for the Sunday meeting, where OPEC+ ministers will gather at 2 pm in Vienna to announce the policy decision

According to Reuters, oil output cuts could amount to 1 million bpd on top of the existing cuts of 2 million bpd and the voluntary cuts of 1.6 million bpd that was announced in a surprise decision in April. If approved, it would take the total volume of reductions to 4.66 million bpd, or around 4.5 per cent of the global demand.

Also Read: Oil ditches initial gains on firm US dollar, analysts say buy the dip: Key pressure points for crude this week

Oil price movement

The surprise output announcement in April helped to drive oil prices about $9 per barrel higher to above $87, but eventually retreated, under pressure of global economic growth and demand. Oil prices stayed on edge throughout the week as conflicting messages on OPEC+ cut from Saudi Arabia and Russia kept investors on their toes. 

Last month, Saudi Arabia’s Energy Minister Prince Abdulaziz said investors who were shorting the oil price should “watch out”, which many market watchers interpreted as a warning of additional supply cuts. However, Russian Deputy Prime Minister Alexander Novak played down and poured cold water over expectations of further cuts, saying he did not expect any new steps from OPEC+ in Vienna. 

Also Read: What is the US debt ceiling deal and how is it affecting oil prices?

What will OPEC+ decide?

“We will never hesitate to take any decision to achieve more balance and stability (on) the global oil market,” Iraq’s Oil Minister Hayan Abdel-Ghani said on arriving in Vienna, according to Reuters. Western nations including US and UK have accused OPEC of manipulating oil prices and undermining the global economy through high energy costs. 

However, OPEC officials have said the West’s money-printing over the last decade has driven inflation and forced oil-producing nations to act to maintain the value of their main export. Notably, the West has targeted Russia with hard-hitting sanctions after Moscow invaded Ukraine to deprive it of economic benefits from oil exports.

Analysts at JP Morgan, however, said that OPEC had not acted quickly enough to adjust supply to high levels of US fuel output.

“Demand growth continues to be robust. Rather, there is simply too much supply… The alliance waited too long to reduce supply. The alliance – or at least some members – would likely need to cut more,” analysts from JP Morgan said in a note.

Rapidan Energy Group analysts put the chances of a further cut at 40 per cent. “Ministers are determined to avoid a repeat of 2008, when a sudden collapse in global economic and financial stability sent crude prices from over $140 to $35 in six months,” they wrote.

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Updated: 03 Jun 2023, 04:06 PM IST

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