Oil markets balked at the OPEC+ news this week that saw the organization extend cuts from Saudi Arabia and Russia and deepen the group’s overall cuts with other member states beginning in the first quarter of next year.
The distinction–and likely a large factor in sending prices downward on Thursday–is the fact that the additional cuts (those beyond Russia and Saudi Arabia’s rollover cuts) are voluntary cuts.
On one hand, this could be seen as a large win for Saudi Arabia, which has been shouldering much of the market balancing efforts this year after agreeing to voluntarily cut 1 million bpd over this summer. OPEC’s most prolific producer has for a while been laying the groundwork in expressing its displeasure with OPEC’s other members, who have been benefiting from Saudi Arabia’s cuts without having to carry as much of the burden from reduced production. In the end, Algeria, Kazakhstan, Oman, Iraq, Kuwait, and the UAE all agreed to voluntarily cut production during the first quarter of next year to the tune of 693,000 bpd.
On the other hand, the voluntary nature of the production cuts and the fact that OPEC+ did not announce the levels of the cuts because they were voluntary–leaving it up to each member state to do so–send oil prices falling after they had risen early in the day on rumors that the group could cut 2 million bpd at the start of the year.