Barely two months after the Organization of the Petroleum Exporting Countries (OPEC) and its allied members (OPEC+) announced a surprise crude oil production cut, markets are abuzz with rumours that the Group may announce another output cut of 1 million barrels per day (bpd) to support the falling energy prices. The OPEC+ Group, of which Russia, a country facing sanctions, is a major constituent, has convened a two-day meeting of its members in Vienna, the capital of Austria, over this weekend.
If implemented, the production cut would push crude oil prices up and support the economy of major producing countries, primarily in the Middle East. Saudi Arabia, Iraq, United Arab Emirates, Iran, and Kuwait are among the major crude oil producers in the region. Additionally, Russia, Canada, China, and Brazil also contribute a huge quantity of crude oil, of which Russia faces sanctions, embargo, and price caps as penalties for its invasion of Ukraine.
| Proposed crude oil output cut |
| Producing countries | Volume (barrels per day) |
| Russia | 500,000 |
| Saudi Arabia | 500,000 |
| Iraq | 211,000 |
| United Arab Emirates | 144,000 |
| Kuwait | 128,000 |
| Kazakhstan | 78,000 |
| Algeria | 48,000 |
| Oman | 40,000 |
| Gabon | 8,000 |
| Total | 1,657,000 |
Source: Reports
Accounting for nearly 20 percent of global crude oil production and consumption, the United States is self-sufficient in this fossil fuel segment. However, the country continues to import crude oil from the Middle East and other countries to stockpile its strategic reserves and for export purposes. Currently, the United States leads the Western nations’ economic counter-attack on Russia.
| World’s 10 largest crude oil producers in 2022 |
| Country | Volume (million barrels/day) | Share in the world total (%) |
| United States | 20.21 | 20 |
| Saudi Arabia | 12.14 | 12 |
| Russia | 10.94 | 11 |
| Canada | 5.70 | 6 |
| China | 5.12 | 5 |
| Iraq | 4.55 | 5 |
| United Arab Emirates | 4.24 | 4 |
| Brazil | 3.77 | 4 |
| Iran | 3.66 | 4 |
| Kuwait | 3.02 | 3 |
| Total top 10 | 73.36 | 73 |
| World total | 99.89 |
Source: Energy Information Agency (EIA), United States
Production cuts in AprilOPEC+ surprised the market in early April when the Group announced a production cut of 1.65 million bpd in the first week of April. In addition to Russia’s 500,000 bpd of production cut, Saudi Arabia joined the race by planning to lower 500,000 bpd of crude oil output. Individual countries like Iraq, United Arab Emirates, and Kuwait announced a crude oil production cut of 211,000 bpd, 144,000 bpd and 128,000 bpd, respectively. Kazakhstan, Algeria, and Oman are also projected to lower crude oil production by 78,000 bpd, 48,000 bpd, and 40,000 bpd respectively.
The ministerial panel meeting of OPEC+ members including Russia met in April to decide the production cut. According to analysts, the meeting considered crude oil production, supply, and availability. In this meeting, leaders also discussed the timeline for these production cuts. As per the present decision, the production cut is proposed to continue till the end of 2023. It is worth mentioning here that OPEC+ has already imposed a 2 million bpd of crude oil production cut since October last year. Therefore, the overall crude oil production and global supply cut now stand collectively at 3.66 million bpd.
| World’s 10 largest crude oil consumers in 2022 |
| Country | Volume (million barrels/day) | Share in the world total (%) |
| United States | 19.89 | 21 |
| China | 14.76 | 15 |
| India | 4.79 | 5 |
| Russia | 3.67 | 4 |
| Japan | 3.41 | 4 |
| Saudi Arabia | 3.35 | 3 |
| Brazil | 2.96 | 3 |
| South Korea | 2.58 | 3 |
| Canada | 2.26 | 2 |
| Germany | 2.13 | 2 |
| Total top 10 | 59.80 | 62 |
| World total | 96.66 |
Source: Energy Information Agency (EIA), United States
“All of this has fuelled fears that inflation will prove to be a longer-lasting problem for central banks. While many central banks (like the European Central Bank) have managed to reliably convey a hawkish message despite recent market turmoil, the ultra-volatile market pricing for the United States Federal Reserve’s rate path is once again set to be one of the most impacted,” said International Energy Agency in a recent report.
According to reports, some leaders in the Group are preferring to wait to assess the full impact of the production cut in April, while others including Russia are in a hurry to reduce the output, and eventually elevate the price. Crude oil prices in the world market remained under pressure due to the increasing focus on green energy.
Data compiled by Polymerupdate Research revealed that the benchmark Brent crude oil prices marginally increased on Friday to end the week at US$76.13 a barrel, around a 43 percent decline from its peak of US$127.98 a barrel the energy reached in the aftermath of the Russian invasion of Ukraine on February 26, 2022.
A report published by Kotak Securities, said, “WTI crude oil futures climbed on Frida amid weakness in the greenback, supply disruptions and as trades were turning their attention to the weekend’s OPEC+ meeting in Vienna. Kazakhstan’s giant Kashagan oil field has deepened production cuts to more than a third of total output to allow further checks following a gas leak. European natural gas prices are heading toward their lowest run on weekly declines since February 2007 due to persistently weak demand and ample supplies.”
DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com
