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Saudi Arabia is preparing to extend oil production cuts into next year, as OPEC+ considers further cuts in response to falling prices and growing anger over Israel’s war with the Hamas.
After prices hit a four-month low of $77 a barrel this week, four people close to the Saudi government’s thinking said it was very likely it would extend its $1 million cut. barrels per day at least until spring.
The voluntary measure, which is due to expire at the end of this year, was introduced this summer as a temporary measure on top of broader oil cartel cuts. Currently, Saudi Arabia produces around 9 million b/d, compared to a maximum of around 12 million b/d.
Further cuts, which could inflame tensions with the United States, are being discussed within OPEC+ as it prepares to meet in Vienna on November 26.
While falling oil prices are the main cause, members are also outraged by Israel’s war against Hamas and the humanitarian crisis in Gaza.
An additional OPEC+ cut of up to 1 million bpd could be on the table, one person informed said, calling the cartel “galvanized” by the conflict.
Kuwait, Algeria and Iran are among the OPEC members most agitated by the conflict.
“The level of anger that exists and the pressure Gulf leaders feel from their populations to respond in one way or another should not be underestimated,” another person said. close to senior OPEC officials in the Gulf.
The person said there would be no repeat of the oil shock of the 1970s, when Arab states cut off exports to the West. But they added: “People have become complacent about the possibility of cutting oil supplies to send a subtle message, which will be well understood both in the streets and in Washington DC. »
US President Joe Biden faces a tough re-election battle next year, possibly against his predecessor Donald Trump, and the White House is already struggling to convince voters that the country’s economy is healthy.
Those close to Saudi thought stressed that no final decision had yet been made. They stressed that any public statement by Saudi Energy Minister Prince Abdulaziz bin Salman would keep the focus on the oil market rather than the war between Israel and Hamas.
Prince Abdulaziz recently criticized hedge funds for increasing their bets on oil amid expectations the market could see a small surplus next year due to a weak global economy and increasing supplies outside OPEC.
JPMorgan’s Christian Malek said OPEC+ could make a further cut of 1 million bpd to anticipate “potential demand weakness” in the first half of next year, with Saudi Arabia hoping that other members “share the burden” of any further reduction. .
Other analysts have suggested that Prince Abdulaziz could push other countries to deepen cuts – or to comply with their past commitments to reduce production – by threatening that Saudi Arabia could return to full production if such measures are not taken.
Russia, an OPEC+ member that relies heavily on oil to finance its invasion of Ukraine, has increased its maritime exports in recent months.
The economic reform agenda of Prince Abdulaziz’s half-brother, Crown Prince Mohammed bin Salman, calls for an oil price close to $100 a barrel, analysts say. The plan ranges from building hypermodern cities to hosting the FIFA World Cup in 2034.
But some experts suggest OPEC+ members will proceed cautiously, mindful of their growing role on the international stage. The United Arab Emirates, which is hosting the UN COP28 climate negotiations in Dubai this month, is keen to present itself as a modernizing force.
“We are going through an incredibly delicate time in the Middle East,” said Helima Croft, a former CIA analyst and head of commodities research at RBC Capital Markets.
“Even though the oil market has largely ignored the expanding conflict, major risks remain, particularly on Israel’s northern border with Lebanon, where a confrontation with Hezbollah could draw Iran into the conflict.”
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