Russia announced a major oil production cut Friday, a move that could have ramifications for Middle East oil producers.
What happened: Russia said it would cut production by 500,000 barrels per day starting in March. The price of Brent crude oil rose from around $85 to nearly $87 a barrel early Friday around the time the news broke, according to market data.
Bloomberg subsequently reported that the OPEC+ alliance of oil producing countries will not boost production in light of Russia’s cut. OPEC+ is therefore set to produce less oil collectively come March.
Reuters reported that Russia did not consult with OPEC+ ahead of the announcement.
What it means: OPEC+ consists of members of the Organization of the Petroleum Exporting Countries (OPEC) and a few other major oil producers, most notably Russia. Saudi Arabia is the biggest oil producer in OPEC.
OPEC+ agreed last month to leave oil production unchanged. Its current agreement on production levels lasts through the end of 2023.
Matthew Bey, a senior analyst at the RANE Network, said OPEC+ did not boost production in response to Russia due to its current agreement and that OPEC+ could benefit from the effects of Russia’s cut on global oil prices.
“OPEC+ countries get a free-rider bonus to prices as Russia has decided to take oil off the market without demanding or pushing for them to do the same,” Bey told Al-Monitor. “OPEC+ would only increase production in response if there was a risk that Russia's cutoff would cause a supply crisis, but that does not appear to be the case.”
Bey also pointed to Saudi Arabia’s history of instituting voluntary production cuts. The kingdom did so in 2021, for example. Saudi Foreign Minister Prince Faisal bin Farhan Al Saud told the World Economic Forum last month that Saudi Arabia is committed to oil price “stability” as the world seeks more renewable energy.
Bey added that the Middle Eastern OPEC members are generally in agreement on oil production despite Iraq’s calls for a greater production share in recent years.
“There are always slight differences in opinion over individual member states' burden of the cuts, but I think from a strategic perspective most MENA countries are happy with OPEC+'s overall production levels because they are helping keep the global oil price floor above $80 per barrel or so, which compared to the 2014-2020 environment is much higher,” said Bey.
Oil prices plummeted in 2020 amid the COVID-19 pandemic and a price war between Russia and Saudi Arabia. The price of Brent crude has consistently been around $80 a barrel or higher since the start of 2022.
Prices also shot up after the Russian invasion of Ukraine last year. Last November, OPEC+ also instituted a production cut of 2 million barrels per day that is still in effect.
Bey said he does not expect any significant price increases in the short term beyond the “reasonable” increase that followed Russia’s announcement Friday.
Know more: Gerard Kepes wrote for Al-Monitor Pro last month that OPEC+ may be losing control over the oil market as China and India gain more influence as consumers.