The Organisation of Petroleum Exporting Countries and its allies (OPEC+) have confirmed an agreement to slash oil production by 100,000 barrels per day (bpd), albeit accounting for just 0.1% of global demand, to help support prices.
Russian deputy prime minister Alexander Novak revealed that expectations of slower global economic growth is the reason behind cutting output.
“The bigger picture is that OPEC+ is producing well below its output target and this looks unlikely to change given that Angola and Nigeria, in particular, appear unable to return to pre-pandemic levels of production,” Caroline Bain, Capital Economics chief commodities economist, commented.
OPEC+ confirmed they can meet at any time, before a next agreed gathering on October 5, 2022, if production needs to be altered again.
Saudi Arabia, one of the leading OPEC producers, said last month that output reductions may be required to deal with exaggerated oil price declines.
Oil prices have slumped in recent months, tumbling from multi-year highs seen in March this year just weeks after Russia’s invasion of Ukraine. Interest rate hikes and COVID-19 lockdowns in China have been blamed by analysts for slowing oil demand and economic growth.
Commenting on the OPEC+ change, Craig Erlam, senior market analyst, UK & EMEA, at OANDA said: “It’s the symbolic message the group wants to send to the markets more so than anything.”
In August, the International Energy Agency (IEA) raised its oil demand forecast for 2022 with the expectation that many countries will do lots of gas-to-oil switching amid unprecedented natural gas and electricity prices.