Opec+ ministers meeting with cuts on the mind

The Opec+ coalition will today examine proposals to reduce production quotas by as much as 2mn b/d in November, as high inflation rates and signs of economic slowdown threaten oil demand.

The alliance has in recent days studied proposals to reduce its collective production ceiling by more than 1mn-1.5mn b/d and by as much as 2mn b/d, delegates told Argus. But consensus is yet to be reached on which path to take.

Opec+ ministers will seek to reconcile any differences on November production policy as they enter their first in-person meeting in the Austrian capital, Vienna, since March 2020. Monthly ministerial meetings have been carried out virtually in the interim. Ministers of most delegations will attend in person, a delegate said.

But they will have to do this without formal guidance from the group's Joint Technical Committee (JTC), which did not have its typical monthly meeting. Instead, today sees only a meeting of the Joint Ministerial Monitoring Committee (JMMC), which oversees country-level compliance with production quotas, and then the ministers' gathering.

Any cut would partly reconcile a widening disparity between the pledged and delivered production of Opec+ members, which was 3.58mn b/d in August. Several Opec+ members have struggled with dwindling spare capacity, underinvestment, sabotage, infrastructural collapse and sanctions. So a pro-rata distribution of the cuts, the group's preferred arrangement over the past two years, would mean members with remaining spare capacity — such as Saudi Arabia and the UAE — would have to lower their output, tightening supplies.

Opec+ has of late undertaken only small adjustments to its quotas, including a token 100,000 b/d increase in September and a cut of the same amount in October. A larger reduction would help get ahead of a potential economic downturn, delegates said, with accelerating rates of inflation — partly fueled by elevated energy prices since Russia's invasion of Ukraine in February — and a strong US dollar potentially biting into global demand.

Two delegates said the coalition could today study a potential successor to the production agreement, which expires at the end of the year. A new deal running into 2023 could potentially be built on new terms, such as revised baselines or differently-weighted distribution of production cuts and increases.

By Ruxandra Iordache, Nader Itayim and Bachar Halabi