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OPEC+ Is Considering A Substantial Oil Production Cut

Several major producers of the OPEC+ alliance have started talks about a potential oil production cut ahead of the regular monthly OPEC+ meeting on October 5, OPEC and OPEC+ sources told Reuters on Thursday.

OPEC+ meets next Wednesday to discuss the market and fundamentals situation as oil prices have fallen below $90 per barrel, a level last seen just before the Russian invasion of Ukraine.

It is "likely" that the group will agree on a cut, a source at OPEC told Reuters.

At the previous meeting, OPEC+ reversed the 100,000-barrels-per-day increase for September and returned the October quota to the levels from August.

While the slight tweak in the group's collective target is negligible for oil market balances, OPEC+ signaled readiness to intervene in the market at any time. The meeting in early September decided to "Request the Chairman to consider calling for an OPEC and non-OPEC Ministerial Meeting anytime to address market developments, if necessary."  

Earlier this week, Reuters sources familiar with Russian thinking said that

Russia was likely to propose at the next OPEC+ meeting that the group cut 1 million barrels per day (bpd) from the group's collective output.

In reality, the cut would be much smaller, considering that many OPEC+ members, including Russia, are pumping well below their respective targets.

One of the latest estimates put the gap between the quota and actual output widening to a massive 3.58 million bpd in August.

At any rate, a large cut from OPEC+ next week would support oil prices, and there is growing consensus among analysts that a production cut is coming.

"We certainly see a significant chance that the producer group will opt for a substantial cut to try to signal that there is indeed an effective circuit breaker in the market," Helima Croft, chief commodities strategist at RBC Capital Markets, said on Thursday, as carried by Bloomberg. The cut could be as much as 1 million bpd, according to Croft.

By Tsvetana Paraskova for Oilprice.com

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