“OPEC can be surprising. This time it alarmed markets by postponing its ministerial meeting by four days. As a result, crude oil prices fell by over 4% on Wednesday. Subsequently, a rebound was observed when informed sources reported that it was merely about adjusting production quotas for African countries. Either way, investors around the world are wondering what Saudi Arabia and Russia will do regarding voluntary production cuts that have been in place since July. Before the official confirmation of the postponement by OPEC+, Bloomberg agency, citing delegates, reported that Saudi Arabia was not satisfied with the production levels of some member countries. This raised doubts about the willingness to maintain voluntary production cuts after the end of the year and the chances of reaching an agreement on further reducing production volumes. Ultimately, however, it turned out that the reason for postponing the meeting was a few African countries, which enabled oil prices to recover most of their losses.
According to officials, Angola and Nigeria want to increase oil production and therefore will likely demand higher production targets for 2024. Both countries, along with Congo, were offered the prospect of adjusting their production targets at the upcoming OPEC+ meeting, after their reduction in early June.
In exchange, the United Arab Emirates were allowed to increase their production volume from January 2024, which was already fully utilized in October. Given these differences, it will probably be difficult to reach an agreement on larger production cuts, especially since the upcoming Thursday meeting is to be held virtually.
Regarding Saudi Arabia, the country still seems willing to bear the brunt of the supply cuts necessary to stabilize prices. It appears that in the first quarter, it will continue its previous arrangements. Otherwise, there would be a high risk that the decline in raw material prices would be deeper in the near future. The question arises whether the cartel will be able to agree on any cuts beyond this limit. This would certainly reduce the risk of oversupply in the first months of next year. On the other hand, it would limit maneuvering room in case of worsening global economic prospects.”
Łukasz Zembik, Oanda TMS Brokers
