OPEC+ slashes headline output by 2 million bpd from November

5 Oct 2022

Quantum Commodity Intelligence - OPEC+ announced Wednesday a production cut of 2 million barrels per day from November, which was at the higher end of market expectations heading into the week.

However, once reports emerged that the group's Joint Ministerial Monitoring Committee (JMMC) supported the 2 million bpd reduction, the figure was largely seen as a given and helped consolidate the week's firm rebound in oil prices.

Dec22 Brent was trading around $93/b shortly after the meeting concluded, up around $8/b from Friday's settle.  

"The OPEC+ cut could help Brent prices rebound to $110/bbl by year-end," said UBS bank, commenting on the size of the cut.   

The 2 million bpd cut is the largest reduction since the group slashed quotas by 9.7 million bpd at the height of the Covid pandemic in 2020.

However, in real terms, the total reduction will be around 50% of the headline figure, with most members of the alliance remaining within compliance even at reduced quotas, as the wider group continues to miss the target by over 3.5 million bpd.  

"Due to widespread capacity limits within OPEC+, a headline ("paper") cut is likely to overstate significantly the effective ("physical") curtailment of production. The effective cut is likely to be only circa 50% of the headline quota figures," Goldman Sachs said in an investor note.

According to US media reports, the Biden administration had launched a full-scale pressure campaign in a last-ditch effort to dissuade Middle Eastern allies from dramatically cutting oil production.

CNN Business noted that for the past several days, President Joe Biden's senior-most energy, economic and foreign policy officials had been enlisted to lobby their foreign counterparts in Middle Eastern allied countries, including Kuwait, Saudi Arabia, and the UAE, to vote against cutting oil production.

Highlights of key OPEC+ meetings

March 2020

OPEC+ group fails to reach an agreement on cutting supplies in the face of the COVID-19 pandemic, as both Russia and Saudi increase production, triggering a sharp price drop.

April 2020

OPEC+ agrees to a record supply cut of 9.7 million bpd, oil prices rebound.

June 2020

Producers agree to extend the first phase of the 9.7 million bpd cuts for another month but announce plans for reduced cuts to 7.7 million bpd starting in August.

December 2020

Members announce a small 500,000 bpd increase for January 2021. Agree to hold meetings on a more regular basis in 2021 to review market conditions.

January 2021

Agrees to keep output steady except for small increases in Russia and Kazakhstan. Saudi Arabia announces a voluntary 1 million bpd cut for February and March.

April 2021

OPEC+ agrees to gradually increase production by 1 million bpd May-July, while Saudi to restore 1 million bpd of voluntary cuts.

June 2021

OPEC+ meeting lasts under one hour, ends with an agreement to stick with the existing plan, but no discussion on output changes for August and beyond.

July 2021

OPEC+ agrees to increase output by 400,000 bpd each month from August to December, adding 2 million bpd in total, but with the flexibility to review the proposed hikes.

December 2021

Agrees to a further 400,000 bpd hike in January after pressure from consumer countries, despite Omicron Covid surge and Q1 oversupply fears.

Late-March 2022

May quotas set to rise by a combined 432,000 bpd, linked to higher baseline levels. Shrugs off pressure to ramp up production after Russia's invasion of Ukraine.

June 2022

OPEC+ agrees to increase output by 648,000 bpd in both July and August.

August 2022

Modest increase of 100,000 bpd announced for September.

September 2022

Reverses September increase, returns to August quotas.

October 2022

OPEC+ announces a headline cut of 2 million bpd from November, which analysts say will result in around 1 million bpd of actual cuts.