Riyadh: The Organization of the Petroleum Exporting Countries and its allies' decision to reduce crude production by 2 million barrels per day beginning in November will have a limited effect on the world oil market because the actual output reductions will be less than expected, according to a report by rating agency Fitch.

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While other members of the so-called OPEC+ group, such as Nigeria, will have some room under their respective quotas to increase output, Saudi Arabia and the UAE will be required to make the largest actual production cuts.

According to the report, "recent increases in global oil inventories indicate that the market is in a production surplus."

"We expect OPEC+ to target a broad balance in the oil market by changing production quotas and available crude supplies," the statement continued. "However, given demand uncertainty and the recession in major developed markets, it may become increasingly difficult to reach agreement among the members."

Even though a recessionary economic outlook will result in lower oil demand, this demand has recently been boosted by energy generation shifts from gas to oil and high natural gas prices, according to the report.

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It also stated that further sanctions and geopolitical unrest are expected to fuel short-term price volatility on the oil market, which could affect Russian exports.

President Joe Biden last week announced the release of an additional 10 million barrels from the nation's strategic petroleum reserves to the world's oil markets starting in November, despite the US having criticised OPEC+'s decision to cut oil output.

According to Fitch, if the Iran nuclear deal is successful, the country's oil production may rise, which could significantly alter supply patterns and lead to significant price fluctuations.

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However, the report noted that as geopolitical tensions eventually subside, oil prices are predicted to moderate in the medium and long terms, with prices edging closer to full-cycle costs.

In the long run, Fitch continued, the decarbonization of the world economy will have a growing impact on oil demand.