The coalition of oil-producing nations led by Saudi Arabia and Russia moved to blunt falling prices Thursday with plans for a fresh 1 million barrel cut to daily production, in addition to an extension of an earlier cut of equal size that was set to expire.
The additional cuts are not part of a binding agreement, but according to a report in Reuters citing unnamed delegates at Thursday’s meeting, they will be made on a voluntary basis by member nations, adding doubt to their durability.
The development at the Organization of the Petroleum Exporting Countries, or OPEC Plus, comes as prices at the pump in the United States have dropped to an average of $3.25 for a gallon of regular, according to AAA, and economic challenges around the globe have forecasters cautioning that oil prices were likely to remain flat without further production cuts. Even with the consortium’s latest move to reduce output, analysts speculate that prices may not rise considerably at a time when inventories are flush and nations outside OPEC have expanded production capabilities.
The price of a barrel of Brent crude fell slightly as news of the voluntary cuts spread, dropping below $83.
But another development at OPEC Plus on Thursday could strengthen the group’s influence over global oil prices starting next year: It has enlisted Brazil as a member. The South American nation was a potential partner for the United States in weakening the consortium’s control over prices. But its decision to align with OPEC, which already controls roughly 40 percent of the world’s oil supply, is a setback for the Biden administration.
Brazil will join the group next year, according to a statement from OPEC Plus.
OPEC Plus struggled to reach this latest agreement for voluntary cuts amid internal tensions among members. The group had planed to gather Sunday, but postponed its meeting as it became clear that more time was needed to reach consensus. Oil prices had dropped 4 percent on news of the postponement Sunday. While Saudi Arabia was pushing for steeper cuts, other nations in the consortium were resistant to lowering output.
At the same time, OPEC Plus is facing considerable external headwinds in its efforts to elevate oil prices. Analysts report that there is suddenly a glut of oil in the market, in no small part because of stepped-up production in the United States. Inventories of US crude are up to 440 million barrels, according to Rystad Energy, 20 million barrels higher than a month ago.
At the same time, economic struggles in China are playing a big role in tamping down forecasts for global demand, even as road traffic around the world is back to pre-pandemic levels and airlines are flush with bookings.
After the price of Brent crude soared to more than $95 a barrel following Hamas’s terrorist attack on Israel in early October, it quickly fell back down. Worries of an oversupply drove a major sell-off earlier this month, when Brent prices dropped below $80 a barrel.
Gas prices in the United States have fallen for 10 straight weeks, according to GasBuddy, the app that monitors prices at 150,000 stations. In 17 states, the price for a gallon of regular averages $2.99 or less.