As previewed repeatedly in recent days, and as Reuters once again leaked overnight, moments ago the delayed OPEC+ meeting concluded with the expanded cartel agreeing on an additional 1 million barrels in production cuts, alongside an extension of Saudi Arabia's 1 million bpd in voluntary "lollipop" cuts.
While we wait for further details, what Reuters has reported so far is that Algeria agreed to cut January oil production by another 50,000 bpd, according to the country’s energy minister, while Saudi Arabia agreed to cut output by 1 million bpd. Russia will cut 500,000 bpd, which are effectively extensions of current cuts.
At the beginning of the Joint Ministerial Monitoring Committee (JMMC) meeting on Thursday, delegates told media that OPEC+ might discuss deeper oil production cuts for Q1 2024 and that total production cuts might be close to 2 million bpd, depending on the willingness of the countries to contribute. This figure was said to include a rollover of the 1.3 million bpd cuts from Saudi Arabia and Russia. However, the final decision on the plan for 2024 production would only come from a meeting of the full online OPEC+ meeting that is to follow.
Bloomberg's Julian Lee calculates that if the extra 1 million barrels a day cut is applied to the existing 2024 targets, with the various voluntary reductions applied on top of that, the new target for Saudi Arabia will be about 8.7 million barrels a day which is just over 200,000 barrels a day above the level to which it’s target was cut in the depths of the Covid-19 pandemic.
In other words, the oil market is about to get very, very tight especially if any of the multiple stimulus packages China is throwing around actually works and China's economy rebounds.
Separately, we also learned that Brazil has been invited to join the OPEC+ alliance in 2024 and is considering the invitation. The move would draw one of the world’s most significant sources of new supply growth into the cartel just as it tightens its squeeze on production. The Latin American giant exported an average of 1.8 million barrels a day of oil in the third quarter, an increase of 40% from a year earlier, according to official data. Better-than-expected production growth from Brazil, along with the US, is helping to lift up global supply by 1.7 million barrels a day this year to a record level, according to the International Energy Agency.
In response to the news, Crude rose just over 2% in New York, peaking around $79.5 before reversing some gains.