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New Energy World
New Energy World embraces the whole energy industry as it connects and converges to address the decarbonisation challenge. It covers progress being made across the industry, from the dynamics under way to reduce emissions in oil and gas, through improvements to the efficiency of energy conversion and use, to cutting-edge initiatives in renewable and low carbon technologies.
The members of OPEC+ announced a planned 2mn b/d supply cut from November at their latest meeting, double what many market observers had expected.
At its first face-to-face meeting in Vienna since March 2020, the OPEC+ group agreed to cut production from August 2022 levels by 2mn b/d, to a new target production level of 40.1mn barrels. The move aims to stabilise prices that have fallen below $90 in recent months, from peaks of $122 in June, as the world economy slows.
The cut will take effect from November, and continue through 2023, and represents around 2% global oil supply. It is the biggest reduction by OPEC+ since 2020, when it cut production by more than 9mn b/d in response to the COVID-19 pandemic.
The move drew criticism from the US Biden Administration, which called it ‘shortsighted’ at a time when the global economy was ‘dealing with the continued negative impact of Putin’s invasion of Ukraine’ and when maintaining a global supply of energy was ‘of paramount importance’.
Concerned that the OPEC+ decision would ‘have the most negative impact on lower- and middle-income countries that are already reeling from elevated energy prices’, the White House said that the US Department of Energy would deliver another 10mn barrels from the Strategic Petroleum Reserve (SPR) to the market next month, while the Biden Administration and Congress would explore ways to boost US energy production and reduce OPEC’s control over energy prices.
Commenting on the OPEC+ announcement, Rystad Energy’s Senior Vice President Jorge Leon suggests that the full 2mn b/d cut will not actually be delivered, but instead be closer to 1.2mn b/d as 14 out of the 23 member countries (accounting for 39% of the group’s production in September) ‘are currently underproducing so that the new quota will not be binding’. He notes that, for example, Russian production is around 9.7mn b/d but its new quota is 10.5mn b/d.
Leon says the estimated 1.2mn b/d of effective output cut for November 2022 will be mainly shouldered by Saudi Arabia (–520,000 bpd), Iraq (–220,000 bpd), the United Arab Emirates (–150,000 bpd) and Kuwait (–135,000 bpd). Kazakhstan, Algeria, Oman, Gabon, and South Sudan will also contribute.
He also notes that the two shifts in OPEC+ policy that were announced ‘will also be quite impactful on the oil market’.
First, the Declaration of Cooperation was extended until the end of 2023. ‘This adds a year of potential sturdy oil price floor amid what OPEC+ describes as an “uncertain” global economic outlook and the need for long-term guidance in the oil market,’ he says.
The second important detail is that the 23-member group will only meet every six months, ‘signalling that the new target production level of 40.1mn barrels will not be tinkered with on a month-to-month basis’ according to Leon. However, the Joint Ministerial Monitoring Committee (JMMC) will meet every two months, ‘meaning that there is manoeuvrability for tweaks to policy if market conditions waver’.
