OPEC Cuts Output; Asks Brazil 12/01 06:44
LONDON (AP) -- The OPEC oil cartel led by Saudi Arabia and allied producers
including Russia made another big swipe at propping up lagging crude prices
Thursday, expanding some output cuts into next year and bringing up-and-coming
oil supplier Brazil into the fold.
Lower oil prices have been a good thing for U.S. drivers, who have been able
to fill their gas tanks for less money in recent months. But it's bad news for
OPEC+ countries whose oil income bolsters their economies and who have faced
setbacks in pushing prices higher despite initial fears that the Israel-Hamas
war could affect oil flows.
The OPEC+ oil ministers came out of an online meeting with more than 2
million barrels per day in voluntary cuts through the first three months of
next year and declared that Brazil would join the bloc in January, bringing one
of the world's fastest-growing oil producers into an alliance that is trying to
rein in global supply.
However, sweeping cutbacks from OPEC+ and individual member countries since
October 2022 have not made lasting changes to oil prices because of concerns
about too much crude circulating in a weakening global economy, which could
weigh on the thirst for oil for travel and industry.
The market even shrugged off the new move, though it amounts to roughly 2%
of global supply.
Jorge Leon, senior vice president of oil market research for Rystad Energy,
called it a "bit of disappointing meeting" for OPEC+ and a "bittersweet" one
for Saudi Arabia in particular because it couldn't convince the whole group to
commit to production cuts.
The market also was let down, because it "was likely expecting a deal
covering the first half of next year," he said.
Other energy experts saw the oil bloc's two-part solution for a lagging
market more positively. Paul Tossetti, an executive director of S&P Global
Commodity Insights, praised the "imaginative ways" of OPEC+ lately in dealing
with market challenges from the Americas, climate change efforts and on other
Taken together, the bloc's two moves Thursday serve to "preserve the unity
of the group at a challenging time," Bhushan Bahree, another executive director
at the group, wrote.
Saudi Arabia led the deepening voluntary cuts Thursday, extending its
reduction of 1 million barrels per day through March. It was followed by
Russia, which is cutting 500,000 barrels per day of crude and refined oil
products, and then Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria
and Oman with smaller amounts.
Russia wants higher oil prices to boost the main way it fills its war chest
against Ukraine, while the Saudis have to earn nearly $86 per barrel to meet
their planned spending goals, according to the latest estimate from the
International Monetary Fund.
Saudi Arabia is trying to fund an ambitious overhaul of the kingdom's
economy, reduce its dependence on oil and create jobs for a young population.
But the international benchmark Brent crude has stayed in the low- to
mid-$80 range in recent weeks and fell more than 2% to $80.91 a barrel
following the meeting before settling at $82.83 Thursday. U.S. crude also
dropped 2.5% to $75.90 before settling at $75.96 per barrel.
The expanded cuts were expected to keep crude prices in the same range of
$80 to $85 a barrel for the first half of the year, Leon said.
Lower oil prices have allowed U.S. gas prices to fall or stay steady since
Sept. 19, AAA said. Gas is averaging just below $3.25 a gallon, the motor club
said, down about 7% from a month ago.
But that's still higher than when President Joe Biden took office in January
2021, when prices were averaging about $2.40 a gallon. High inflation has been
a political challenge for Biden going into the 2024 election, prompting him to
say this week that efforts to improve supply chains and reduce price pressures
are a priority.
"President Biden is focused on prices for American consumers, which have
been coming down steadily," the White House said in a statement Thursday after
the OPEC+ meeting.
U.S. oil production has hit records as OPEC+ has cut back, with producers
outside the group expected to keep leading global growth in oil supply next
year, the International Energy Agency said.
For instance, daily production in the U.S. averaged 13 million barrels a day
in August, an increase of more than 1 million barrels from a year ago,
according to the latest monthly figures from the U.S. Energy Information
The risk is growing that production cuts could reduce the influence of OPEC+
over oil supplies as other countries boost their output.
"The kingdom is balancing the desire to keep prices high by limiting supply
with the knowledge that doing so will lead to a further drop in overall market
share," Leon said.
Bringing in Brazil, which the IEA also said has been producing record
amounts of oil this year, would give the 23-member OPEC+ a leg up.
Adding Brazil's oil would bring the amount of global production controlled
by OPEC+ up to 62%, similar to the share held by the organization when Russia
joined in the mid-2010s, Leon said.
Jos Chrispiniano, press secretary for President Luiz Inacio Lula da Silva,
said the invitation was under analysis.