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OPEC+ may cut oil production to ease growing dysfunction in global energy markets
OPEC+ could cut oil output as increased volatility and low liquidity rattle global energy markets, Saudi Arabian Energy Minister Prince Abdulaziz bin Salman told Bloomberg.
In written responses to questions from Bloomberg, he warned that the trends areundermining the market’s price functions, making the costs of hedging and managing risks prohibitive.
Bin Salman added that the lack of liquidity is giving the market “a false sense of security” and leaving it market more disconnected from fundamentals, as spare capacity remains extremely tight and the risk of severe disruptions is still high.
“In a way, the market is in a state of schizophrenia, and this is creating a type of a yo-yo market and sending erroneous signals at times when greater visibility and clarity and well-functioning markets are needed more than ever to allow market participants to efficiently hedge and manage the huge risks and uncertainties they face,” he said.
Saudi Arabia is the world’s top crude oil exporter and the de facto leader of OPEC. In the immediate onset of the COVID-19 pandemic in 2020, OPEC and its non-member partners agreed to slash oil production as demand collapsed.
But demand soon rebounded, and OPEC+ has been gradually bringing production back up for two years. Meanwhile, OPEC+ has been falling short of its output targets by million barrels each month.
“OPEC+ has the commitment, the flexibility, and the means within the existing mechanisms of the Declaration of Cooperation to deal with such challenges and provide guidance including cutting production at any time and in different forms as has been clearly and repeatedly demonstrated in 2020 and 2021,” bin Salman said.
Oil prices erased earlier losses to trade mixed on Monday. West Texas Intermediate was down 0.1% at $90.67 a barrel, while Brent crude was up less than 0.1% at $96.75.
