The OPEC+ group of oil producers is discussing output cuts of more than 1 million barrels per day (bpd), OPEC sources said, and voluntary cuts by individual members could come on top of that, making it their largest cut since 2020.
The group is set to meet on Oct. 5 in Vienna -- in person for the first time since March 2020 -- against a backdrop of falling oil prices and months of severe market volatility which prompted top OPEC+ producer, Saudi Arabia, to say the group could cut production, according to Reuters.
OPEC+, which combines OPEC countries and allies such as Russia, has been gradually raising its output target to unwind the record cuts it made in 2020.
But it now faces a sharp fall in prices, which have dipped below $90 per barrel from as high as $120 in recent months due to fears about the global economy and a rally in the U.S. dollar after the Federal Reserves raised rates.
"It may be as significant as the April 2020 meeting," the source said, referring to when OPEC+ agreed record supply cuts of around 10 million bpd, or 10 per cent of global supply, as the COVID-19 pandemic slashed demand.
A significant cut is likely to anger the United States, which has been putting pressure on Saudi Arabia to continue pumping more to help oil prices soften further and reduce revenue for Russia as the West seeks to punish Moscow for sending troops into Ukraine.
What the West describes as an invasion the Kremlin calls a special military operation.
Saudi Arabia has not condemned Moscow's actions amid difficult relations with the administration of U.S. President Joe Biden.
Last week, a source familiar with Russian thinking said Moscow would like to see OPEC+ cut its output target by 1 million barrels per day (bpd) or 1 per cent of global supply.
On Sunday, sources said the cut might exceed 1 million bpd.
On Monday, one OPEC source said voluntary cuts by individual members would come on top of that figure.
It was not yet clear what levels of voluntary cuts Saudi Arabia or any other top Gulf OPEC producers could contribute.
In the past few years, only Saudi Arabia has offered voluntary cuts to give additional boost to the markets.
"My instinct is that if they (OPEC+) have suggested a cut and prices are still going down, they will have to do it and a bigger one than they wanted," said Raad Alkadiri, managing director at Eurasia Group.
Stephen Brennock at PVM said fears of a demand-sapping recession have rattled OPEC+ and hence they are set to take preemptive action.
"It must be noted that OPEC+ is already pumping more than 3 million bpd below its target, hence any further cuts will only exacerbate the existing supply tightness," he said.