As the global economy shakes, the OPEC oil alliance is considering stronger cuts to production next year to prevent an expected price slump in the market. Some reports have indicated that authorities from some of the biggest Petro-nations in the world are seeking to cut an extra 400,000 barrels of oil per day from the global market. They are also considering stronger cuts of up to 800,000 barrels. It is noteworthy that the tighter oil production policy already has the support of authorities from Saudi Arabia and Iraq. They are expected to be agreed by the 14-strong alliance at the headquarters of OPEC in Vienna before the end of the year. OPEC has been curbing in its production for the last 3 years to support the oil market recover after plunging to 12-year lows in early 2016.
It would retreat stronger cuts to shore up global oil prices against a flood of new oil production into the market from countries outside the alliance, and a slowdown in the hunger for crude globally. It is important that the oil production from outside the OPEC alliance is expected the fastest growth rate in 40 years at about 2.26 million barrels per day. An analyst at Rystad Energy, Espen Erlingsen said the combination of slowing growth and fast-rising oil production will put a significant amount of pressure on OPEC to extend and stronger production cuts if they have any hope of supporting the oil price in the near term.
It is important that Saudi Arabia is the de facto leader in OPEC and a global oil price slump would generate trouble for its state-owned energy corporation only months after its market debut on Riyadh’s stock exchange. Industry experts have warned Saudi Aramco (the most profitable company in the world) would struggle to maintain its shareholder payouts from the first year if the price of oil slips below 60 U.S dollars per barrel without increasing government debt. The benchmark price of Brent crude climbed to 63.50 U.S dollars per barrel on Thursday morning. It was a hike from lows of 55 U.S dollars per barrel in August, but still below 2019 highs of about 75 U.S dollars per barrel earlier in the year.