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RIYADH: Oil prices rose more than 3 percent on Monday as the Organization of the Petroleum Exporting Countries and its allies agreed a small production cut to bolster prices.
At a meeting at 1pm CEST on Monday Sept, 5, the group, which includes Russia and is known as OPEC+, agreed to reduce output by 100,000 barrels per day, with a statement saying “the production level was only intended for the month of September 2022.”
Brent crude futures futures for November delivery rose $3.43 to $96.45 a barrel, a 3.7 percent gain, by 9:14 a.m. EDT (1314 GMT).
US West Texas Intermediate crude was up $2.94, or 3.4 percent, at $89.87 after a 0.3 percent gain in the previous session. US markets are closed for a public holiday on Monday.
A statement on the Saudi Press Agency after the meeting said that OPEC+ had "noted the adverse impact of volatility and the decline in liquidity on the current oil market and the need to support the market’s stability and its efficient functioning."
It added: "The Meeting noted that higher volatility and increased uncertainties require continuous assessment of market conditions and readiness to make immediate adjustment to production in different forms, if needed, and that OPEC+ has the commitment, the flexibility, and the means within the existing mechanisms of the Declaration of Cooperation to deal with these challenges and provide guidance to the market."
The cut amounts to only 0.1 percent of global demand, prompting Oanda analyst Craig Erlam to say: “It’s the symbolic message the group wants to send to the markets more so than anything.”
He added: “What we’ve probably seen from the markets was pricing in most of the worst-case scenario.” .
The chairman of OPEC+, which includes Russia, said it would consider calling for an OPEC and non-OPEC ministerial meeting anytime to address market developments, if necessary.
A source said OPEC+ would hold its next meeting on Oct. 5.
Russia, the world's second-largest oil producer and a key OPEC+ member, does not support a production cut at this time and the producer group is likely to decide to keep output steady, the Wall Street Journal reported on Sunday, citing unnamed sources.
OPEC+ agreed to increase output by 648,000 bpd in both July and August, as they fully unwind nearly 10 million bpd of cuts implemented in May 2020 to counter the COVID-19 pandemic.
The group agreed last month to raise production quotas by another 100,000 bpd in September as it faced pressure from major consumers including the US, which are keen to cool prices.
A move to tighten supply was floated by Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, not long after that decision was taken, as he described the oil market as being “in a state of schizophrenia”.
His comments were later backed by Sudan and the UAE.
Algerian oil production in October will be at 1.057 million barrels per day (bpd), unchanged from September, Algeria’s Energy Ministry said in a statement on Monday.
Russian deputy PM
Russian Deputy Prime Minister Alexander Novak said on Monday that expectations of weaker global economic growth were behind a decision by Moscow and its OPEC allies to cut oil output.
Speaking on state television after the OPEC+ group agreed to reduce production by 100,000 barrels per day for October, Novak said the global energy market was characterised by heightened uncertainty at the moment.
“We are not talking about price formation, but about the adequacy of supply on the market, so that on the one hand there is no excess, and on the other there is no shortage,” Novak said, adding that the OPEC+ countries were largely meeting their production quotas under the deal.
Russia’s lucrative oil exports have become a major target for Western countries over Moscow’s military actions in Ukraine.
The EU has imposed a partial oil embargo that it says will cut 90 percent of Russian exports to the 27-member bloc when fully implemented.
And Group of Seven finance ministers last week announced plans to impose an oil price cap on Russia that could have far-reaching implications for its ability to secure tankers and insurance even on exports beyond the G7.
Novak said the plans for an oil price cap were creating heightened volatility on the world market.