The Organisation of Petroleum Exporting Countries and its allies, (OPEC+), agreed to slash its crude production target by two million barrels a day (bpd) from November, the biggest cut since the group reduced quotas by 9.7mn b/d at the start of the Covid-19 crisis in 2020.
The coalition has also agreed to extend its production cooperation agreement until the end of 2023.
The decision taken on Wednesday at the group’s first in-person meeting in Vienna since March 2020 — came against a backdrop of heightened concerns that an inflation-driven economic slowdown will weigh on global oil demand.
It was taken “in light of the uncertainty that surrounds the global economy and oil market outlooks, and the need to enhance the long-term guidance for the oil market,” the OPEC Secretariat said.
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Capital Economics research group now expects global oil prices to rise from about $93 to $100 per barrel, with U.S. benchmark prices rising from $88 to $92. At the outset of Russia’s invasion of Ukraine, global oil prices had climbed to as much as $128.
“We had always expected supply growth to slow later this year and into 2023, but this latest OPEC+ action has reinforced our view that prices will end the year a little higher,” Caroline Bain, a chief commodities analyst for Capital Economics, said in a note following the Wednesday announcement.
Oil ministers from the group have had to consider several competing challenges that threaten oil market stability. On the one hand, several oil-consuming economies face a potential recession on the back of rising inflation, fuelled by energy price hikes since Russia’s invasion of Ukraine.
On the other hand, supply constraints loom large, with limited spare crude production capacity within OPEC+ and elsewhere exacerbated by uncertainty over the impact of the EU’s upcoming embargo on Russian seaborne imports and price caps on Russian oil.
