The Opec+ alliance of oil-exporting countries has decided to cut oil production in order to cause an increase in price. The cartel decided to cut production by two million barrels a day from November.
Opec made the decision at its first face-to-face meeting since the start of the Covid-19 pandemic, which was held in its Vienna headquarters. The group said the decision was based on the “uncertainty that surrounds the global economic and oil market outlooks”.
Saudi Energy Minister Abdulaziz bin Salman stressed the cartel’s stated role as a guardian of stable energy markets. He told reporters: “We are here to stay as a moderating force, to bring about stability."
Besides a token trim last month, the major cut in the amount of crude that Opec+ ships to the world is an abrupt turnaround from months of restoring deep cuts made in 2020 during the depths of the pandemic. As demand rebounded, global energy prices have swung wildly since Russia invaded Ukraine, fuelling inflation that is squeezing economies around the world.
The decision comes as oil trades well below its summer peaks because of fears that major global economies such as the US or Europe will sink into recession due to high inflation, rising interest rates meant to curb rising consumer prices, and uncertainty over Russia’s war in Ukraine.
“We are going through a period of diverse uncertainties, which could come our way, it’s a brewing cloud,” Mr bin Salman said, adding that Opec+ sought to remain “ahead of the curve”.
Oil prices surged this summer as markets worried about the loss of Russian supplies from sanctions over the war in Ukraine, but they slipped as fears about recessions in major economies and China’s Covid-19 restrictions weighed on demand for crude. International benchmark Brent has sagged as low as $84 in recent days after spending most of the summer months over $100 per barrel.
At its last meeting in September, Opec+ reduced the amount of oil it produces by 100,000 barrels a day in October. That token cut did not do much to boost lower oil prices, but it put markets on notice that the group was willing to act if prices kept falling.
