The Opec oil cartel is considering deeper cuts to production next year to avert a price slump in the market as the global economy falters.
Ministers from some of the world’s biggest “petro-nations” are expected to cut an extra 400,000 barrels of oil a day from the global market, and may consider even deeper cuts of up to 800,0000 barrels, according to reports.
The tighter oil production policy already has the support of ministers from Saudi Arabia and Iraq and is expected to be agreed by the 14-strong cartel at Opec’s headquarters in Vienna before the end of the week.
Opec has been reining in its production for the last three years to help the oil market recover after plunging to 12-year lows in early 2016. It may resort to even deeper cuts to shore up global oil prices against a flood of new production into the market from countries outside the cartel, and a slowdown in the world’s appetite for crude.
Analysts expect rising demand for oil to falter next year as the US-China trade war threatens to stifle global economic growth. At the same time, oil production from outside the Opec group is expected to grow at its the fastest rate in 40 years, by about 2.26m barrels a day.
Espen Erlingsen, an analyst at Rystad Energy, said the combination of slowing growth and fast-rising oil production will put “significant pressure” on Opec to “extend and deepen production cuts if they have any hope of supporting the oil price in the near-term”.
For Saudi Arabia, Opec’s de facto leader, a global oil price plunge would spell trouble for its state-owned energy corporation only months after its market debut on Riyadh’s stock exchange.
Industry experts at OpenOil have warned that Saudi Aramco, the most profitable company in the world, would struggle to maintain its shareholder payouts from the first year if the price of oil slips below $60 a barrel without raising government debt.
The benchmark price of Brent crude climbed to $63.50 a barrel on Thursday morning, up from lows of $55 a barrel in August but still well below 2019 highs of about $75 a barrel earlier in the year.
“The oil market got livelier, but not because of the Opec meeting,” said Norbert Rücker, an analyst at Julius Baer. He said news of “a more feasible rapprochement between the United States and China on trade” probably triggered the bounce.
“We share the consensus view that the group will most likely extend the supply cuts for another six months. Soft demand and growing supplies from the US, Canada, Brazil and the North Sea are set to keep the oil market amply supplied,” he said.