(Bloomberg) — OPEC+ is considering a reduction in its production limit of as much as 2 million barrels a day, although the impact on global supply could be smaller.
The group may discuss a cut of that size, plus smaller reductions ranging from 1 million to 1.5 million barrels a day, when it meets on Wednesday, delegates said. Based on current discussions, so far curbs would use existing baselines to measure each country’s contribution, one delegate said.
Several members are already pumping far below their official quotas, meaning they could automatically be in compliance with their new limit without having to curb production. It could still result in the cartel’s largest reduction since the deep cuts agreed at the outset of the Covid-19 pandemic in 2020, but the actual impact on global oil supply could be significantly smaller than the headline number suggests.
Ministers were tight-lipped about their intentions as the arrived in Vienna on Tuesday. Saudi Energy Minister Prince Abdulaziz bin Salman declined to comment. His counterpart from the United Arab Emirates, Suhail Al Mazrouei, said the group will make a decision after reviewing market data provided by its technical committee.
A reduction of that size, if it were to be agreed tomorrow at the meeting of the Organization of Petroleum Exporting Countries and its allies in the Austrian capital, would reflect the scale of the producer group’s concern that the global economy is slowing in the face of rapidly tightening monetary policy.
Oil futures extended gains in New York, rising 3.3% to $86.34 a barrel as of 11:05 a.m.
Earlier this year, Brent crude soared above $125 a barrel following Russia’s invasion of Ukraine in February. It’s since dropped, tempering the spectacular windfall enjoyed by Saudi Arabia, Russia, the United Arab Emirates and other major producers.
A large OPEC+ cut risks adding another shock to the global economy, which is already battling energy-driven inflation. The US and other countries have called for more production, with President Joe Biden visiting Saudi Arabia earlier this year in search of a new oil deal — and ultimately lower pump prices for Americans ahead of mid-term elections in November.
Biden got some concessions from OPEC+ — an acceleration of production increases in July and August capped by a pledge for a nominal supply hike of 100,000 barrels a day in September. The group followed through on its pledge, with production climbing by 230,000 barrels a day last month according to a Bloomberg survey, but output will start dropping in October and could go even lower later in the year.
OPEC and its partners have been meeting online on a monthly basis and weren’t expected to arrange an in-person gathering until at least the end of this year. The slump in prices may have been what prompted the change of tack, requiring the first face-to-face talks since 2020.