While the move is completely negligible in terms of actual market supply, considering not only the small change in the overall target but also the massive underperformance from the producer pool in the region of 2.9 million bpd below quota, the decisions of OPEC+ on Monday sent a strong message to the oil market that the group is ready to meet at any time and decide on any cuts it deems appropriate to “stabilize” oil prices. It’s a signal to the market that analysts largely interpret as a determination by the alliance and its de facto leader, Saudi Arabia, to continue to intervene in the market and not let prices fall too far below current levels. The OPEC+ meeting on Monday approved a decision to cut its collective oil production target by 100,000 bpd for October, despite Russia reportedly resisting such a move. In another extremely brief meeting, energy ministers from the OPEC+ production pact agreed to return target output levels to August quotas, saying last month’s increase was only meant for September. But more importantly, OPEC+ decided it could call a meeting at any time to discuss other actions. The meeting, OPEC said, decided to “request the President to consider calling for an OPEC and non-OPEC Ministerial Meeting at any time to review market developments, if necessary.”
By giving the alliance’s chairman, Saudi Energy Minister Prince Abdulaziz bin Salman, the power to call a meeting at any time if necessary, OPEC+ sent a strong message to the oil market: cuts could be made at short notice , “in any form”. which could mean unilateral cuts may not be off the table. Although the token cut for October does nothing to change fundamental supply/demand balances, OPEC+’s readiness to intervene whenever it deems necessary suggests that Saudi Arabia and other influential OPEC+ members believe that oil prices have already has seen quite a sell-off in recent months. “OPEC+ action seems to confirm that the floor for Brent is not far below US$90/barrel. And while small changes in the supply/demand balance, it doesn’t send a great message to the US government, which has been pressuring OPEC for much of the year to increase production more aggressively,” Warren Patterson, Head of Commodity Strategy at ING, commented the outcome of the OPEC+ meeting. The US government, for its part, commented on the latest OPEC+ decision with White House press secretary Karine Jean-Pierre saying: “The President has been clear that energy supply will have to match demand to support economic growth. growth and lower prices for American consumers and consumers around the world,” as the AP reports. “President Biden is determined to continue to take every step necessary to support energy supplies and lower energy prices,” the White House added.
But Saudi Arabia is thinking about market “stability” – or in OPEC+ parlance, higher oil prices – with its latest messages to the market. Last month, Prince Abdulaziz bin Salman said OPEC+ was ready to cut production at any time in any form if it believed it would bring stability to the “schizophrenic” oil market.
After the 100,000 bpd cut was agreed on Monday, the energy minister of the world’s top crude oil exporter told Bloomberg in an interview “This decision is an expression of the will that we will use all the tools in our kit.” “The simple adjustment shows that we will be cautious, proactive and proactive in supporting the stability and efficient functioning of the market for the benefit of market participants and the industry,” said Prince Abdulaziz bin Salman. October’s small quota cut “is intended to send a message that OPEC+ is back in price-watching mode,” Bill Farren-Price, head of global oil and gas macroeconomic research at Enverus, told Bloomberg. According to Jason Bordoff, an energy and climate policy expert at Columbia University: “Oil (and pump) prices are down. 100 kbd may seem negligible, but the message from today’s cut is clear: OPEC+ believes it has fallen far enough.”
An OPEC source told Reuters after Monday’s OPEC+ meeting that “Price movements up and down are a cause for concern,” while another source in a Gulf country said “Members are confident that the president can to intervene whenever necessary to bring about more stability and that may be beyond October until the end of the (OPEC+) deal.” What’s next? OPEC+ will seek stability and keep its thinly stretched spare capacity intact amid increased uncertainty in both supply and demand in the coming months. On offer, it is uncertain how the planned Russian oil price cap will affect markets, especially if Russia follows through on its threat to stop exporting its oil to importers that have joined this cap mechanism. Then there is the possibility of a revival of the Iran nuclear deal, although the latest developments point to a setback in the EU-brokered US-Iran indirect talks on a final draft of a possible deal. On the demand front, the economic slowdown in major economies, including China and the United States, could weigh on oil demand growth. However, an acute gas shortage in Europe and excessively high gas prices in both Europe and Asia could prompt more gas-to-oil switching as winter approaches. By Tsvetana Paraskova for Oilprice.com More top reads from Oilprice.com: