RIYADH: The decision by the Organization of the Petroleum Exporting Countries and its allies to slash crude production by 2 million barrels per day from November will have a muted impact on the global oil market, as the actual output cuts will be smaller, according to a report by rating agency Fitch.

Fitch noted that Saudi Arabia and the UAE will have to make the largest actual production cuts, while other countries in the group known as OPEC+, including Nigeria, will have some room under their respective quotas to hike output. 

“The recent increases in global oil inventories suggest that the market is in a production surplus,” said the report. 

It added: “We expect OPEC+ to target a broad balance in the oil market by changing production quotas and available crude supplies, although it may become increasingly difficult to achieve a consensus among the members due to demand uncertainties and the recession in large developed markets.” 

Even though a recessionary economic outlook will lead to lower oil demand, this has recently been boosted by switches from gas to oil in energy generation, and high prices of natural gases, the report added. 

It further noted that price volatility in the oil market is expected to continue in the short term, driven by geopolitical tensions and further sanctions which may lead to a reduction in Russian exports. 

While the US has been critical of OPEC+’s decision to reduce oil output, President Joe Biden last week announced the release of an additional 10 million barrels from the country’s strategic petroleum reserves to global oil markets beginning in November. 

According to Fitch, a potential conclusion of the Iran nuclear deal could increase oil production in the country, which may significantly shift supply patterns causing large price fluctuations. 

The report, however, noted that oil prices are expected to moderate in the medium and long term as geopolitical tensions will eventually ease, with prices moving closer to full-cycle costs. 

Fitch added that oil demand will be increasingly affected by the decarbonization of the global economy in the long term.