OPEC+ to extend production cuts as oil prices fall?

The fall in oil prices – $77 / barrel 18th Nov – accompanied by the Israel-Hamas war has led the OPEC+ countries to consider extending their oil production cuts. At present Saudi Arabia produces approximately 9mn b/d compared to a maximum of 12mn b/d. Although the oil price drop is the main cause of the fall in output, the Israel-Hamas war has alarmed the cartel, especially Kuwait, Algeria and Iran.

On the demand side OPEC+ could cut 1mn b/d from production on the anticipation that there will be a reduction in demand for oil with a slowdown in global activity reducing the price. The meeting of the members of the OPEC+ on November 26 will decide whether or to cut supply with concerns of global growth. Some analysts have suggested that as Saudi Arabia has made several voluntary cuts to production in July, that they will demand Kuwait, Iraq and the UAE do the same. However oil supply has continued to grow outside the OPEC+ nations – US, Guyana and Brazil have increased their output. The latter hoping to become the world’s fourth largest producer by 2029.

OPEC’s aim

OPEC’s objective is to co-ordinate and unify petroleum policies among Member Countries, in order to secure fair and stable prices for petroleum producers; an efficient, economic and regular supply of petroleum to consuming nations; and a fair return on capital to those investing in the industry. Source: opec.org

OPEC and OPEC+ timeline

• 1960 – Organisation of the Petroleum Exporting Countries (OPEC) – formed by Iraq, Iran, Kuwait, Saudi Arabia, and Venezuela.

• 2016 – with the drop in oil prices (shale production from the US) OPEC+ was formed.

• 10 countries added including Russia who produce 13% of the world total – 10.3m b/d. 2022 – OPEC produced 28.7m b/d = 38% of world production

• 2022 – OPEC and OPEC+ produced 48m b/d = 59% of world production

Of the OPEC+ countries Russia’s oil output is much larger than the other 9 countries. Therefore, any policy initiatives are largely discussed between OPEC and Russia.

Source: OPEC+ weighs further oil production cuts as anger mounts over Gaza. FT – 18-11-23

For more on Supply and Demand view the key notes (accompanied by fully coloured diagrams/models) on elearneconomics that will assist students to understand concepts and terms for external examinations, assignments or topic tests.