Brazil invited to join OPEC+ as cartel works on re-energising oil prices

Saudi Arabia says it will extend a cut in the amount of oil it sends to the world after a series of previous reductions by members of the OPEC+ alliance of major producing countries failed to prop up prices.

The group might soon include Brazil.

The Saudi Energy Ministry said in a statement on its website that its voluntary cut of one million barrels per day will stay in place through the first three months of next year. It had been due to expire after the end of the year, and comes on top of other sweeping cuts made by OPEC+ and individual countries.

The reductions have not made lasting changes to oil prices because of concerns about oversupply in a weakening global economy, which could weigh on the thirst for oil for travel and industry.

Saudi Arabia’s announcement came after the OPEC oil cartel and allied nations like Russia met in an online meeting about global oil production — the same day the UN COP28 climate conference kicked off in the United Arab Emirates, an OPEC member.

OPEC+ oil ministers also announced that Brazil will join their oil bloc in January, bringing one of the world’s fastest-growing oil producers into their alliance.

The move announced by the OPEC oil cartel on Thursday would make an ally out of one of the key rivals to OPEC+, the world’s independent oil producers.

The International Energy Agency says booming crude oil production in the United States and Brazil has been frustrating efforts by OPEC+ to rein in global oil supply.

José Chrispiniano, press secretary for President Luiz Inacio Lula da Silva, says the invitation is under analysis.

The current OPEC+ membership, which include OPEC nations and allied producers led by Russia, are working to bring oil prices back up amid market oversupply and anticipated falling demand next year.

The OPEC+ ministers set quotas for Angola, Congo and Nigeria after they postponed their meeting originally set for Sunday by four days. There was no immediate word on reductions from other member countries, including Russia, whose voluntary cut of 300,000 barrels per day lasts through to the end of the year.

Russia wants more oil revenue as it faces Western sanctions, but seeks to pour energy earnings into its war chest against Ukraine. The Saudis have to earn nearly US$86 per barrel to meet their planned spending goals, according to the latest estimate from the International Monetary Fund.

The Saudis are trying to fund an ambitious overhaul of the kingdom’s economy, reduce its dependence on oil, and create jobs for a young population.

But the international benchmark Brent crude has stayed in the low to mid-US$80 range in recent weeks, reflecting concerns about oversupply in a weakening global economy, which could weigh on the thirst for oil for travel and industry.

Brent fell more than two per cent to US$80.91 a barrel following the OPEC+ meeting, while US crude dropped 2.5 per cent to US$75.90 a barrel in electronic trading on the New York Mercantile Exchange.

Oil production in the United States has hit records as OPEC+ has cut back, with producers outside the group expected to keep leading global growth in oil supply next year, the International Energy Agency said in its November oil report.

For instance, daily production in the US averaged 13 million barrels a day in August, an increase of more than one million barrels from a year ago, according to the latest monthly figures from the US Energy Information Administration.

Now, the risk is growing that Saudi Arabia’s production cuts could reduce OPEC’s influence over oil supplies as other countries boost their output.

“The kingdom is balancing the desire to keep prices high by limiting supply, with the knowledge that doing so will lead to a further drop in overall market share,” said Jorge Leon, senior vice-president of oil market research for Rystad Energy.

Meanwhile, fears the conflict between Israel and Hamas might spread throughout the region, creating a shock to the oil market, have not materialised, with the IEA noting that “there has been no material impact on oil supply flows from the war”.

AP