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Top oil producers agree to slash output

October 5, 2022

The 23-member alliance has decided to reduce production by 2 million barrels per day. The move could increase crude oil prices and aid Russia, which is grappling with Western attempts to reduce its financing.

Two police officers standing guard outside OPEC headquarters in Vienna
The 13 OPEC members and 10 non-members held their first in-person meeting in Vienna since March 2020Image: Alexey Vitvitsky/SNA/IMAGO

The 23-member OPEC+ alliance agreed on a major cut in oil production Wednesday during a meeting in Vienna.

The organization is made up of the 13 major oil producers of OPEC, as well as 10 other non-OPEC countries, including Russia.

What did OPEC+ agree to?

Iran's OPEC Governor Amir Hossein Zamaninia said the group agreed to reduce production by 2 million barrels per day from November. The cut is likely to lead to a rise in oil prices.

The organization said in a statement that the decision was based on the "uncertainty that surrounds the global economic and oil market outlooks."

Saudi Energy Minister Abdulaziz bin Salman said that the organization was a "moderating force" and aimed "to bring about stability." He added that OPEC+ intends to remain "ahead of the curve" in the face of a "period of diverse uncertainties."

The alliance said it would renew the cooperation between OPEC members and non-members, which was due to expire at the end of the year.

Crude oil prices had dropped in recent months amid concerns over falling demand and the possibility of a global recession.

Prices had fallen below $90 per barrel, after soaring to $140 per barrel at the start of Russia's invasion of Ukraine. Brent North Sea crude, which serves as an international benchmark, was up to $93.43 after OPEC's announcement.

A rise in the price of crude oil could help Moscow, which is facing an EU ban on most of its crude exports set to take effect in December and a bid by G7 members to cap Russian oil prices.

In July, US President Joe Biden appealed to Saudi Arabia to increase oil production. Later, OPEC+ agreed to boost production.

Biggest cut since height of COVID-19

The alliance reduced output by almost 10 million barrels per day in April 2020 in order to stymie a major drop in crude prices amid COVID-19 lockdowns.

Today's decision marks the largest output reduction since 2020's cut.

OPEC+ began to raise production last year following improvements in the market, and output returned to pre-pandemic levels.

Some members of the organization, including Russia, have already struggled to meet quotas set by the group, which could limit the impact of the OPEC+ agreement to slash production.

US slams 'shortsighted' decision

The White House said that US President Joe Biden was "disappointed" with the alliance’s "shortsighted" decision to reduce production.

"The president is disappointed by the shortsighted decision by OPEC+," National Security Advisor Jake Sullivan and top economic advisor Brian Deese said in a statement.

The decision will hit countries that are "already reeling" from high prices, the statement said. It added that "the global economy was dealing with the continued negative impact" of Moscow's invasion of Ukraine.

Biden will continue to direct releases from Washington's Strategic Petroleum Reserve as necessary. He also called on Congress to find ways to increase US energy production and reduce OPEC's control over global prices, the White House said.

sdi/sms (AFP, AP, Reuters)