Oil output cut: Saudi Minister says OPEC+ doing right job to ensure stable market

OPEC+ earlier this month decided to cut crude oil production quota by 2 million barrels per day

October 21, 2022 06:42 pm | Updated 09:46 pm IST - New Delhi

Saudi Arabia’s Minister of Energy Prince Abdulaziz bin Salman.

Saudi Arabia’s Minister of Energy Prince Abdulaziz bin Salman. | Photo Credit: Lisa Leutner

OPEC kingpin Saudi Arabia on Friday defended the oil cartel and its partners' decision to cut crude oil production, saying they were doing the right job to ensure a stable and sustainable market.

OPEC+ earlier this month decided to cut crude oil production quota by 2 million barrels per day, starting in November, to prop up sagging oil prices.

Saudi Arabia, which co-chairs the OPEC+ alliance with Russia, has been under fire from the U.S. for the output cut at a time when many forecasters are expecting oil demand to rise.

OPEC+ alliance "is doing the right job to ensure stable and sustainable oil markets", said Saudi Energy Minister Abdulaziz bin Salman here.

The Minister is on a day-long visit to prepare the grounds for Saudi Prime Minister and Crown Prince Mohammed bin Salman's trip to India next month.

Since the OPEC+ decision on October 5, Dated Brent peaked at $98.775 per barrel on October 7 and was down to $91.35 on Friday.

The UAE, Iraq and OPEC's secretary general have backed the oil production quotas cut after claims by the U.S. that some producers were under pressure to back the decision led by Saudi Arabia.

The Organization of Petroleum Exporting Countries (OPEC) includes Bahrain, Qatar, Egypt and Kuwait.

The visiting Saudi Minister first held a one-on-one meeting with Commerce and Industry Minister Piyush Goyal, which was followed by a luncheon meeting where Oil Minister Hardeep Singh Puri and Power Minister R. K. Singh also joined.

The Saudi Minister said bilateral issues were discussed at the meeting. He, however, did not elaborate.

He later met Mr. Puri separately but it was not immediately known what was discussed.

The visit next month of the Saudi crown prince is likely to further bilateral trade and economic ties between the two countries.

Besides boosting trade and commerce, the two nations are set to discuss an undersea cable project to connect the west coast with the Middle East.

Saudi Arabia is India's third largest supplier of crude oil behind Iraq and Russia.

India, the world's third largest oil-consuming and importing nation, has been critical of artificial output caps that the OPEC+ alliance has been placing in a bid to regulate prices. It believes high oil prices will push the global economy into a recession.

But with Saudi Arabia and OPEC+ not paying heed to its pleas, New Delhi is now aggressively looking to diversify its oil import basket. OPEC supplies two-thirds of all oil that India imports.

The rebound in global oil prices following the announcement of the OPEC+ decision on quota cut will potentially translate into the record six-and-a-half-month-long freeze in petrol and diesel prices getting extended.

Prior to the OPEC+ decision, international oil prices had dropped to pre-Ukraine war levels, strengthening a case for a cut in retail prices. But the rebound has dampened that.

Prior to the decision of OPEC+, losses on diesel had come down to about ₹5 per litre from a peak of around ₹30 a litre while oil companies had started making a small profit on petrol, industry sources said.

But the rise in prices of crude oil, which is refined to produce petrol, diesel and other products, and the weakening of the rupee against the U.S. dollar would mean losses on diesel will widen and margins on petrol will erode, they said.

India imports 85% of its oil needs and international oil prices directly dictate domestic pricing.

State-owned fuel retailers -- Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL) and Hindustan Petroleum Corporation Ltd (HPCL) -- have not changed the retail selling price of petrol and diesel in line with the international costs for a record six-and-a-half-months now to help the government manage runaway inflation.

This prize freeze led to the firms booking losses on fuel sales as oil prices rose to a multi-year high of around $120 per barrel during May/June. Prices had started to ease in August and dropped to January levels last month.

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