Doubts linger on OPEC+ voluntary oil cuts

Saudi Arabia, Russia and other members of OPEC+, who pump more than 40% of the world's oil, met online on Thursday to discuss supply policy.

By Ahmed Azzam | @3zzamous | 1 December 2023

  • OPEC+ announces no new group cut target for 2024

  • Saudi to roll over 1 million bpd cut into Q1

  • Russia to cut 500,000 bpd

  • Angola rejects its diminished quota after fractious talks

In a virtual meeting held on Thursday, major oil-producing nations within the OPEC+ coalition, responsible for over 40% of the world's oil production, unveiled an additional cut in oil supply by approximately 900,000 barrels per day. Despite this move, crude prices experienced a decline as market participants maintained a cautious stance, expressing doubt about the full implementation of the announced cuts.

Countries such as Russia, the United Arab Emirates, Kuwait, and Iraq pledged additional reductions following the online deliberations, as confirmed by an official statement on the OPEC+ website. Concurrently, Saudi Arabia committed to extending its independent reduction of 1 million barrels per day throughout the first quarter. However, traders remained wary of the voluntary nature of these cuts and questioned the commitment of nations to adhere to the agreed-upon curbs.

The conclusion of the talks witnessed Angola rejecting its reduced output quota, opting to maintain current production levels. This development underscored the challenges within the coalition, reflecting the voluntary nature of the production cuts and raising concerns about their effectiveness in addressing the oversupplied market.

Despite the surprise cutback announcement, West Texas Intermediate (WTI) futures initially surged before sliding 1.5% to $76.67 per barrel. Traders attributed this downturn to the lack of tangible evidence supporting credible incremental output reductions, coupled with uncertainties surrounding the voluntary commitments of Saudi Arabia and Russia.

Since July, Saudi Arabia has voluntarily reduced its oil production by an additional 1 million barrels per day, characterized by Energy Minister Prince Abdulaziz bin Salman as a market-stabilizing measure. However, persuading other OPEC+ members to join this initiative proved challenging, especially as crude prices experienced a notable decline of over 10% from their September peak.

The recent developments raise questions about the nature of the OPEC+ production cuts, perceived as voluntary measures rather than a formalized agreement. This distinction fuels concerns that a significant portion of the announced reductions may exist primarily on paper, translating to fewer barrels actually being withdrawn from the market.

Angola's production quandary

The OPEC+ meeting, originally scheduled for November 26 in Vienna, faced a four-day delay due to disagreements over production quotas for certain African members, prominently Angola. Despite a reduction in Angola's quota by approximately 200,000 barrels per day to 1.1 million, the nation's OPEC governor, Estevao Pedro, vehemently rejected the imposed limit.

Pedro clarified, "We will produce above the quota determined by OPEC. It is not a matter of disobeying OPEC; we presented our position, and OPEC should take it into consideration." This defiance echoes past challenges, reminiscent of Ecuador's departure from the group in 2017, following a similar breach of quotas.

Brazil's surprising entry into OPEC+ cooperation charter

In an unexpected twist, Brazil declared its intention to join the cooperation charter of the OPEC+ oil alliance. Brazilian Energy Minister Alexandre Silveira revealed during Thursday's meeting that the country would formally join the charter from January 2024. Notably, this move does not bind Brazil to mandatory production cuts, marking a unique development within the OPEC+ dynamics.

"President Lula confirmed our entry into the OPEC+ cooperation charter from January 2024," stated Minister Silveira, eliciting a round of applause from the assembled delegates. Brazil's decision introduces a new dimension to the OPEC+ alliance, adding a non-binding participant to the cooperative framework.