The Organization of Oil Exporting Countries (OPEC) Monday decided to cut their output of crude and put on sale on international markets 100,000 bpds less daily as fears of a recession keep bringing down the price of crude.
The group said in a statement that the “higher volatility and increased uncertainties require the continuous assessment of market conditions and a readiness to make immediate adjustments to production.”
The move seeks to keep prices stable after Brent crude dropped below US$100 / barrel in August, on fears that major economies were falling into recession, hitting energy demand.
The OPEC and Non-OPEC Ministerial Meeting noted the adverse impact of volatility and the decline in liquidity on the current oil market and the need to support the market’s stability and its efficient functioning, a statement read.
While analysts had expected another modest increase, the group said it would reduce output by 100,000 barrels per day in October. The decision means the cut rolls back the mostly symbolic increase of the same amount in September. The move also follows a statement from Saudi Arabia’s energy minister that the group could reduce output at any time. OPEC produces around 28 million barrels per day.
The oil producers agreed they could meet any time to adjust production before the next scheduled meeting on October 5. The decision also essentially maintains the status quo as OPEC has been observing wild fluctuations in oil prices, being pulled by multiple factors in both directions.
Saudi Arabia last month admitted possible output cuts to address what it sees as exaggerated oil price declines. Benchmark Brent crude oil has dropped to about US$ 95 a barrel from US$ 120 in June on fears of an economic slowdown and recession in the West.
It was also dragged down by a potential supply boost from Iranian crude returning to the market if Tehran can revive its 2015 nuclear deal with global powers. Iran would siphon up to 1 million bpd to global markets (1% of global demand).
Supply remains tight and many OPEC states are producing below targets while fresh Western sanctions are threatening Russian exports. Russia has said it will stop supplying oil to countries that support the idea of capping the price of Russian energy supplies over its military conflict in Ukraine.