VIENNA, Austria (AFP) — Saudi Arabia on Sunday announced a fresh oil output cut following a meeting of major producers aiming to prop up prices despite fears of a recession.
The meeting saw tough negotiations between the Saudi-led Organization of the Petroleum Exporting Countries, better known as OPEC, and the wider array of aligned oil producers led by Russia and known as OPEC+.
Saudi Arabia’s fresh cut of one million barrels per day is for July but “extendable,” its Energy Minister Prince Abdulaziz bin Salman told reporters after an hours-long OPEC+ meeting at the group’s headquarters in Vienna.
Analysts had largely expected OPEC+ producers to maintain their current policy, but signs emerged this weekend that the 23 countries were mulling deeper cuts.
In April, several OPEC+ members agreed to cut production voluntarily by more than one million barrels per day — a surprise move that briefly buttressed prices but failed to maintain them.
Oil producers are grappling with falling prices and high market volatility amid the Russian invasion of Ukraine, which has upended economies worldwide.
Oil prices have plummeted about 10 percent since the April cuts were announced, with Brent crude falling close to $70 a barrel, a level it has not traded below since December 2021.
Traders worry that demand will slump, with concerns about the health of the global economy as the United States battles inflation and higher interest rates while China’s post-COVID rebound stutters.
Russia’s Deputy Prime Minister Alexander Novak said the current output cuts were being extended until the end of 2024 after examining the matter “for a long time.”
According to an OPEC+ table of the required production levels for next year, the United Arab Emirates will be able to pump more than currently, while several countries including Angola, the Republic of Congo and Nigeria have had their quotas cut.
Bloomberg news agency reported that African countries had been reluctant to give up some of their quotas despite failing to meet them.
“We have an agreement with which everyone is happy,” the Republic of Congo’s hydrocarbons minister Bruno Jean-Richard Itoua insisted after the meeting.
Sunday’s meeting was also being watched closely as Russia was keen to maintain its production, while Saudi Arabia wants to push prices up to balance its budget, according to analysts.
“They have shown again they work together… At the end of the day, it’s about what they agree,” UBS analyst Giovanni Staunovo said, adding that “the important part was to show unity.”
Russia is dependent on oil revenues with its war in Ukraine dragging on and Western sanctions hitting its economy, and has been shipping oil to India and China as the Asian giants soak up the cheap crude.
On the other hand, Saudi Arabia’s break-even price is currently “at a good $80 per barrel,” according to Commerzbank analysts.
In March 2020 the alliance was pushed to the brink of collapse when Moscow refused to cut oil production even as the COVID-19 pandemic sent prices into freefall.
After negotiations broke down, Riyadh flooded the market by boosting exports to record levels before the two countries came to an agreement.
Asked if there was disagreement with Saudi Arabia this weekend, Novak said: “No, we had no disagreements, it is a common decision.”
Analysts said oil prices were expected to rise in the short term following Riyadh’s move.
“The question mark is the demand side of the oil equation. If protracted inflationary pressure leads to a downward revision in global oil demand the cut in supply might be neutralized,” warned Tamas Varga, analyst for PVM Energy.
OPEC+ countries produce about 60 percent of the world’s oil. The next meeting of the group is scheduled for November 26.