OPEC+ considering major production cut to push up oil prices in October 5 meeting

OPEC+, an oil producers group, is considering announcing a major cut in production when it meets Wednesday, according to a person familiar with the thinking of Saudi Arabia, the group’s de facto leader. Such a move, which analysts say is widely expected, would be a blow to the Biden administration, after it lobbied the Saudis to increase output.

A cut would also mark a major turnaround in policy for OPEC+, which includes Russia. Since the group slashed oil production in early 2020 when demand collapsed because of the coronavirus pandemic, the producers have announced a series of steady monthly increases, although they have generally not met those goals.

Analysts say that the Saudis appear determined to bring oil prices up to about $90 a barrel. Oil prices, now about $85 a barrel for Brent crude, the international benchmark, have fallen by roughly one-fourth since their June high.

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“We certainly see a significant chance that the producer group will opt for a substantial cut to try to signal that there is indeed an effective circuit breaker in the market,” Helima Croft, head of commodity strategy at RBC Capital Markets, an investment bank, said last week. Croft estimated that the group was considering announcing a cut of 500,000 to 1 million barrels a day, roughly 1 per cent of the global supply.

The person familiar with the thinking of Saudi Arabia also said a cut of that size seemed likely. In his view, he said, the oil market is oversupplied and demand is weakening because of a flagging world economy.

The Saudis signaled a hawkish posture last month with a largely symbolic cut of 100,000 barrels a day. Now, analysts say, they may think it is time to make a stronger statement.

A sizable cut by Saudi Arabia would appear to be an act of defiance of the Biden administration, which has pushed the Saudis and other OPEC members to supply enough oil to keep a lid on prices. President Joe Biden visited Saudi Arabia in July despite his disapproval of the 2018 murder of the Saudi dissident Jamal Khashoggi by Saudi operatives.

OPEC+ appears to be trying to intervene in a market that is difficult to read. Much of the recent fall in prices may be the result of worries about factors such as rising interest rates by central banks around the world rather than oil market fundamentals.