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Saudi Arabia has won provisional backing for further oil production cuts by the Opec+ group, boosting oil prices to the highest in three weeks ahead of a crucial meeting of the cartel.
The meeting, which is being held online rather than in person after being delayed from Sunday, comes as oil producers attempt to support a price that has slipped in recent months and as tensions in the Middle East are heightened by the Israel-Gaza war.
Saudi Arabia, the group’s most powerful member, has a provisional deal for further group-wide production cuts that will see other members agree to contribute, according to people close to the kingdom, after difficult discussions with countries more hesitant to cut supply.
The kingdom has warned it could unwind its existing voluntary cuts if other members do not make a greater contribution, according to delegates and people close to Riyadh’s thinking, leaving oil markets on a knife edge if the deal cannot be finalised.
“Saudi Arabia has been very clear in saying that [production cuts] have to be a shared effort,” said Jorge León at Rystad Energy and a former Opec official.
Brent crude, the international benchmark, has risen in recent days, as traders bet a deal will be reached to restrict supplies. On Thursday, Brent reached $84.69 a barrel, the highest since early November, taking gains since Friday to about 6 per cent.
People familiar with Saudi Arabia’s thinking have said an additional group-wide production cut of about 1mn barrels a day — about 1 per cent of global supply — has gained support, though the number has not been finalised and could be higher or lower.
The kingdom would also extend its existing temporary voluntary curbs — also of 1mn b/d — that are due to expire at the end of this year, while Russia has also made smaller voluntary cuts to exports.
Richard Bronze, co-founder of Energy Aspects, said an additional 1mn b/d cut was probably the upper bound of what the group could realistically deliver.
“That doesn’t mean necessarily it’s where we end up but it would be hard to see where they get more than that on top of the Saudi Arabia and Russia extensions,” Bronze said.
Delegates and people close to the Opec+ talks said the deal was still being finalised on Thursday morning, with the formal meeting of Opec+ ministers — which includes Russia — expected to start around 2:30pm GMT.
Analysts have warned that failure to finalise a deal to further restrict production would probably see oil prices fall, having already retreated from just below $100 a barrel in September owing to the stuttering global economy and growing supplies outside the cartel’s quota system.
The backdrop of the Israel-Gaza war has also increased tensions between many Opec members and western countries, while the US has cautioned against pushing prices up as they try to bring inflation under control. US president Joe Biden is focused on pump prices ahead of next year’s presidential election.
While people close to the powerful Gulf members have ruled out the possibility of an embargo, like that seen in 1973 during the Yom Kippur war, the FT reported earlier this month that Opec countries may be willing to send a signal over the US’s backing for Israel amid the extent of the destruction in Gaza.
Crucial to securing the deal will be the extent other Opec members are willing to contribute to reducing production, with the delay to the meeting from Sunday at least partly motivated by talks with African members — including Angola and Nigeria — who have pushed back against attempts to curb their output.
Both countries have underproduced in recent years because of underinvestment in their oil sectors, but are loath to accept substantially lower baselines — the level from which member production targets are calculated — as they try to revive their output.
The UAE, a close ally of Saudi Arabia within Opec, is said to now back the cuts having already won a substantially higher baseline and output target for 2024 at the group’s last meeting in June. Its production will still rise but by less than previously indicated.
The UAE is also hosting the UN COP28 climate talks, which begin on Thursday.
Opec secretary-general Haitham Al Ghais said on Thursday that the oil industry was “part of the solution, not the problem” to tackling climate change, despite criticism from environmental activists over the growing influence of fossil fuel producers over the talks.
Additional reporting by Tom Wilson in London