OPEC is mulling an oil-production cut of more than 1 million barrels per day, and the move is exactly the opposite of what the US wants right now

OPEC is mulling an oil-production cut of more than 1 million barrels per day, and the move is exactly the opposite of what the US wants right now
In this photo illustration, the Organization of the Petroleum Exporting Countries (OPEC) logo is seen displayed on a smartphone. (Photo Illustration by Rafael Henrique/SOPA Images/LightRocket via Getty Images)LightRocket via Getty Images
  • OPEC is mulling an oil production cut of more than 1 million barrels per day, per Reuters.
  • The decision is likely to be made during an October 5 OPEC Plus meeting in Vienna.

The Organization of the Petroleum Exporting Countries Plus, or OPEC Plus, is considering cutting its oil output by more than 1 million barrels a day, Reuters reported Monday. The move threatens to anger the US, which is angling to keep oil production high and prices low, with a view to hit Russian oil revenues.

The alliance of 23 oil-producing nations, which includes Russia, is likely to announce its decision at an October 5 meeting in Vienna, Austria.

Cuts to oil production were estimated to range between .5 million and 1 million barrels per day before the weekend, but latest estimates point to a cut of over 1 million barrels per day, Nader Itayim, a Middle East crude oil expert at Argus Media, told Insider.

This means oil prices could touch "$100 per barrel," Viktor Katona, an energy analyst at Kpler, told Insider. That's up from the current levels of around $87 per barrel. Oil prices were around $125 per barrel at the start of the Russia- Ukraine war, which helped prop up Russia's oil revenues.

The supply cut risks sending shockwaves through the global economy, which is already being weighed down by energy-driven inflation and an economic slowdown, per Bloomberg. And it does not help the US' ploy to keep oil supply volumes higher, and the resulting prices lower, which would impact Russian oil revenues.


The US says up, Saudi Arabia says down

The US has been putting pressure on Saudi Arabia, the world's top crude-oil exporter and the de facto leader of OPEC Plus, to keep production volumes high and soften revenues for Russia, to punish the latter for going to war in Ukraine, Reuters reported.

Saudi Arabia, however, has been hinting at production cuts. Energy minister Prince Abdulaziz bin Salman told Bloomberg in August that increased volatility and low liquidity is battering the global energy markets and that as such, the group may be required to tighten production.

In August, 19 of the OPEC Plus countries who are bound by the oil supply target produced around 38.69 million barrels per day, versus a target production of 42.10 million barrels per day, per Argus Media data.

Last month, the OPEC Plus countries decided to cut oil production by 100,000 barrels per day. But, with oil prices falling for the past three to four months, a more severe cut to output could be seen as OPEC Plus putting a "floor" on prices, Itayim said.

Oil prices have faced significant headwinds in the past two years as the Covid-19 pandemic almost wiped out demand, forcing OPEC Plus to slash oil production to stem the free-fall of prices.


But demand rebounded, and the oil supply regulator gradually increased production over the past two years. Even so, OPEC Plus countries have been falling short of their production quotas over the past few years, meaning supply is muted.

Meanwhile, demand looks robust. The European Union has sanctioned Russian oil, and come December 5, an embargo is expected to take effect that would ban the import of Russian sea-borne crude oil and take out a significant chunk of oil supply from the market. Demand is also beginning to pick up in India and China, following the close of the monsoon season and Covid-19 related restrictions in those countries, respectively.

"Everywhere you look, there is less supply in the near-term," Katona said.