The reason given is why OPEC+ will further reduce production by 1 million barrels per day

Expert Yushkov: “The Alliance needs higher prices”

The OPEC+ alliance, at an online meeting on November 30, agreed on an additional reduction in oil production by 1 million barrels per day for all members of the organization, with the exception of Saudi Arabia. Moscow will take on 0.5 million barrels per day of this volume. Riyadh – separately from the rest – will extend its voluntary reduction by 1 million bpd. This means that the position of the two leading oil-producing countries – Saudi Arabia and Russia – prevailed at the negotiations – they acted, in fact, in tandem.

The parties agreed on the deal only on the second attempt. The meeting was previously postponed from November 26 to 30. According to The Wall Street Journal, Africa’s largest oil producers – Nigeria and Angola – resisted lowering individual production quotas. The UAE did not want this either. These states were ready to make money at the current price of a barrel of $80. However, in the end, the alliance showed that it absolutely does not need internal disagreements, since it wants to maintain control over the global commodity market. The additional cuts are intended to compensate for the drop in oil prices from $98 a barrel in September to $84 currently.

“OPEC+ continues to take an active stance, given the likely seasonal weakening of demand in early 2024,” said UBS Group AG analyst Giovanni Staunovo. As for Russia, whose hydrocarbons remain vulnerable due to sanctions, it is beneficial for it to maintain market deficits and reduce discounts on oil sales. Even if this leads to a decrease in production.

“The OPEC+ decision can be explained by the fact that a number of participants, primarily Saudi Arabia, are not satisfied with the current price level of $80,” says Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation. – In order for the government in Riyadh to create a deficit-free budget for the country, it needs higher quotes. In addition, we see that OPEC+ is trying to be proactive. The developments indicate clear concerns about the global economic outlook in 2024. The fact is that over the past few months, the International Energy Agency (IEA) has been actively frightening and intimidating the public with supposedly growing problems in the Chinese economy: they say that since Beijing will reduce oil consumption, prices will fall as a result of an oversupply.”

Meanwhile, in 2023, China, unlike Europe, remains one of the main drivers of global oil demand. However, OPEC+ member countries apparently doubted the inviolability of his position. And, in order to at least keep prices at the current level, they decided to further reduce production volumes, Yushkov sums up.