Saudi Arabia, Russia to Propose Slashing Oil Production Cuts by Another 42%
The Wall Street Journal reported Thursday morning that a select committee of OPEC members, including representatives of Saudi Arabia and Russia, will recommend that the cartel and its partners, collectively known as OPEC+, slash an additional 500,000 barrels a day from the group’s current production cut of 1.2 million barrels a day.
At 1.7 million barrels a day, the total cut represents about 1.7% of the world’s daily consumption of about 100.3 million barrels a day. West Texas Intermediate (WTI) crude oil has gained about $3 a barrel this week to trade at around $58.80 a barrel Thursday morning. Brent crude, the international benchmark, traded at about $63.70, up by about $2.50 a barrel since Monday.
These prices are certain to edge even higher if the report is corroborated by an official announcement from the OPEC ministers who are holding their semi-annual meeting this week in Vienna.
Because Russia is not a formal member of OPEC, it does not have a vote in the cartel’s decision to lower production further. But deeper cuts as a means to raise prices already have been championed by Iran, Saudi Arabia’s chief antagonist among OPEC members, and Iraq. Both countries have been the scene of popular protests related to lack of jobs and rising gasoline prices, among other things.
Low crude oil prices have lowered government revenues which in turn has limited spending. Iranian gasoline prices were raised by about 50% to $0.45 a gallon in mid-November. That applies only to the first 15 gallons or so every month. After that, the price doubles to $0.90 a gallon.
The OPEC committee is also expected to push for stricter enforcement of the production cuts, but only against cartel members. Iraq and Nigeria, for example, have been producing more than their agreed quotas, but the big problem with compliance comes from Russia.
Although a member of the OPEC+ coalition, Russia has a long history of agreeing to all sorts of things and then doing what most benefits Russia. Russia has produced more than its agreed quota of oil in eight of the past 11 months.
However, as we noted earlier this week, Russian President Vladimir Putin has the only vote that matters in Russian foreign policy and, if The Wall Street Journal report pans out, it will clearly indicate that Putin has once again affirmed that good relations with Saudi Arabia are more important than a few more bucks in oil profits.
The official OPEC announcement is due later Thursday. Russia and the other non-cartel members of OPEC+ are expected to endorse the OPEC decision on Friday.