Opec+ mulls crude quota cut as inflation, dollar soar

The Opec+ group could consider further cuts to crude production quotas when ministers meet next week to decide output policy for November, as rising inflation and a strengthening dollar weigh on the outlook for oil demand, several delegates told Argus.

Earlier this month the coalition agreed on a 100,000 b/d drop in its October production ceiling, reversing the quota hike agreed for September. It marked the first cut in the group's output target in over a year.

The pressure on oil demand has since intensified, not just from soaring inflation rates — stoked by a surge in energy prices since Russia invaded Ukraine in February — but also from the recent rally of the US dollar, the standard currency used in key Ice Brent and Nymex WTI futures contracts, along with the majority of physical crude transactions.

The heightened risk of a global recession and the depreciation of local currencies in many economies could erode oil demand, particularly in Asian markets. Earlier this week US bank Goldman Sachs lowered its Brent price forecasts sharply for the rest of this year and for 2023. Ice Brent futures settled at an average of $90.81/bl over 1-28 September, nearly $7/bl below the August average.

Lowering quotas is unlikely to translate into an actual drop in output though, given several members of the group have been struggling to meet their production targets for some time. Sanctions, sabotage, underinvestment and tight spare capacity left the group 3.58mn b/d below its collective August target, according to an average of secondary source estimates.

If a cut is agreed for November, it remains to be seen whether the group will opt to distribute it among members on a pro rata basis, as has been the case in the past. The current Opec+ deal expires at the end of this year and could be renewed under different terms in 2023.

By Ruxandra Iordache, Nader Itayim and Bachar Halabi