According to the Wall Street Journal, OPEC+ representatives said Wednesday that despite the Middle East conflict causing oil market tension, the organization is considering a new production reduction plan with an additional output reduction of up to 100 million barrels per day. The move could push oil prices higher, which could be announced at Thursday's OPEC+ online meeting. But whether a new production reduction agreement will be reached is uncertain, and the new production reduction agreement faces huge resistance within OPEC.

The most likely scenario, representatives said, is that most of the existing production restraint measures will be postponed and negotiations are continuing. Delegates also said that Nigeria and Angola, Africa's two biggest oil producers, have refused to cut their respective production quotas, and the UAE is also unwilling to cut production, but Saudi Arabia supports new production cuts.

Any production cuts announced on Thursday will be in addition to those announced in June. Saudi Arabia cut production by 1 million barrels in June as part of an agreement reached with other members of the group.

Oil prices first climbed and then fell after the Wall Street Journal reported on possible production cuts as traders thought the news had leaked out earlier. The most-traded Brent contract climbed circa 1.5% to exceed $82 per barrel. Analysts say there are more potential constraint measures than most predicted.

“I expect 50 million barrels,” said Bjarne Schieldrop, chief commodity analyst at Esan Bank (SEB). The rumored 100 million barrels is quite profitable, and we can see this from the rise in oil prices. A production cut of 100,000 barrels per day will not necessarily push oil prices higher to $90 per barrel or higher, but it will prevent oil prices from falling below $80.”

Representatives said there was no mention of the Middle East conflict in OPEC talks. But geopolitical tensions are no longer limited to Israel and the Palestinian territories. A vessel linked to Israel was recently seized by Yemeni rebels claimed to be Palestinian. Iraq — Opec's second-largest oil producer troops clash with a US military base.

The United States slammed OPEC+ for agreeing to cut production by 200 million barrels per day last year. THE WHITE HOUSE CALLED THE DECISION OF THE SO-CALLED “OPEC+ALLIANCE” SHORT-SIGHTED AND HINTED THAT THE ORGANIZATION WAS ACTIVELY SUPPORTING RUSSIA'S INVASION OF UKRAINE. OPEC+ Any additional cuts, if approved, could also draw rebuke from the United States.

Saudi Arabia has begun implementing an ambitious project plan, including the construction of a huge new city in the desert, which calls for a fiscally balanced oil price of up to $88 per barrel, according to Goldman Sachs.

Robert Yawger, Energy Futures Executive Director at Mizuho Securities USA, predicts that Brent crude prices will rebound to around $90 per barrel and benchmark WTI crude prices will rebound to around $85 per barrel if OPEC+ continues to implement additional production reductions. However, he added that given the existing strict restrictions, it would be difficult for Saudi Arabia to persuade other member states to sign additional production reduction agreements and put them into practice. “I don't think there's going to be that old-fashioned, really reliable, month-by-month barrel reduction,” he said.

OPEC+Quota Cracks Expose Long-Term Discord

Energy experts Grant Smith and Julian Lee write that the widening gap between the “rich” and the “poor” in OPEC+ is making it more difficult to achieve consistent output reductions. Even if OPEC+ quickly resolves the recent dispute, the root cause of the dispute will not disappear and may worsen over time. At the heart of the dispute is the ever-widening gap between the “rich” and the “poor” in the organization.

This year, Saudi Arabia has shouldered the burden of supporting the oil market by voluntarily cutting production by an additional 100 million barrels per day, proving that only Saudi Arabia has the firepower to take such action. However, Saudi efforts were not enough to stop crude oil prices from falling towards $80 per barrel. As a result, OPEC+ is putting pressure on its smaller and poorer member states, asking them to lend a hand.

In recent years, Angola and Nigeria have been steadily declining in production due to lack of investment or government instability, and OPEC+ is forcefully lowering their production ceilings. The two countries are fighting back.

Angola and Nigeria struggle to meet production targets

The problem is not limited to the African member states of OPEC+. When the group last announced the restrictive measures in April, only nine countries participated. In recent years, production capacity and income in many other countries have fallen sharply, unable to cut further. The subsequent intervention in June was effectively a separate Saudi action.

Grant Smith and Julian Lee believe that if the group announces more production reduction measures this time, only a handful of member states may actually implement it. The number of “volunteers” could be further reduced unless OPEC+countries invest in increased capacity in the coming years.