The Organization of Petroleum Exporting Countries and its allies (OPEC+) have reached a deal to resolve a dispute over oil output quotas that had delayed their policy meeting. The group had postponed their gathering in Vienna, scheduled for last weekend, to this week as they reviewed the demands made by some African members who felt aggrieved by an earlier agreement.
The dispute stemmed from a deal made in June, when Saudi Arabia and Russia pressured Angola, Congo and Nigeria to accept lower production targets for 2024, reflecting their diminished capacities due to under-investment, operational disruptions and ageing oil fields. The African exporters had agreed to the new quotas on the condition that they would be revised higher if an external audit by three firms showed their capacity was larger.
However, the audit results were contested by the African countries, who argued that they did not reflect their true potential. They also pointed out that other OPEC+ members, such as the United Arab Emirates, had secured the right to increase their output in January 2024, while they were asked to cut theirs.
After days of negotiations, OPEC+ managed to find a compromise that satisfied all parties. According to a delegate, the group agreed to tweak the 2024 targets for Angola and Nigeria, giving them some leeway to produce more oil than previously agreed. Congo, which had a smaller quota, did not receive any adjustment.
The deal will allow OPEC+ to focus on the main challenge facing the oil market: the balance between supply and demand amid the threat of slowing economic growth and falling prices. Brent crude futures have slumped by about 15% over the past two months to trade around $81 a barrel on Friday, eroding revenues for the cartel. Saudi Arabia may need oil near $100 to avoid a budget deficit, according to Bloomberg Economics.
OPEC+ leaders Saudi Arabia and Russia are expected to at least extend just over 1 million barrels a day of output curbs through the first quarter of 2024, to pare a looming surplus. They could also announce deeper cuts to deter bearish speculators, RBC Capital Markets LLC and hedge fund manager Pierre Andurand said.
The group will meet on Tuesday to finalize their decision, which will affect the global oil market and the energy transition. OPEC+ accounts for about 40% of the world’s oil production and has a significant influence on prices and investment. The group has been praised for its cooperation and flexibility in managing the oil market during the pandemic but also criticized for its lack of transparency and environmental responsibility.
The deal with the African members shows that OPEC+ is willing to accommodate the diverse needs and interests of its members while maintaining its unity and discipline. The group hopes that its efforts will stabilize the oil market and support the global economic recovery.
Source: Bloomberg
