The Organisation of Petroleum Exporting Countries (OPEC+) yesterday approved a two million barrels per day cut in oil production quota for November, a move American investment banking, securities and investment management firm, Goldman Sachs, says is likely to push oil prices back to triple-digits over the next three months.
In a statement issued yesterday at the end of its meeting, the Group noted that its decision to cut production output is “in light of the uncertainty that surrounds the global economic and oil market outlooks and the need to enhance the long-term guidance for the oil market, and in line with the successful approach of being proactive and preemptive, which has been consistently adopted by OPEC and Non-OPEC Participating Countries in the Declaration of Cooperation.” The group also extended the compensation period to the end of March 2023 for those not meeting their quotas.
Consequently, Saudi Arabia will cut its oil production for November by 526,000 bpd from its current quota of 11.004bpd, while the country’s actual September production came in at 10.904, according to OPEC’s most recent Monthly Oil Market Report—making the Kingdom one of the few OPEC+ members that will realize a nearly complete cut.
Other OPEC producers, such as Angola, Congo, Equatorial Guinea, and Nigeria, who are already producing below their reduced November quotas will not be required to cut production further.
The implication of the production cut was almost immediately manifest yesterday as oil stocks rose early yesterday after the OPEC and its allies announced the production cut.
Stakeholders in the sector noted that this volume represents the biggest cut since the COVID-19 pandemic hit in late 2019. In June 2021, OPEC+ began increasing production quotas and by extension increasing supply by an extra 400,000 b/d into world markets every month with demand for crude beginning to recover. Last month, OPEC+ reduced its output by 100,000 barrels per day, before yesterday’s announcement of a two million barrels per day production cut.
Indeed, Goldman Sachs says such a dramatic cut is likely to push oil prices back to triple-digits over the next three months.