OPEC+ has agreed to take 100,000 barrels a day out of its October output, about 0.1 per cent of global demand. It is a small cut. The group says it wants to prop up prices that have slid as fears of a Western recession grow.
Brent crude has dropped to about $95 a barrel from $120 in June, and WTI has fallen further, to $88. Both benchmarks have taken sharp hits in recent weeks. Iran adds to the downward pull: talks with the West on reviving the 2015 nuclear deal continue, and if sanctions ease, the country is expected to add 1 million barrels a day to supply, or about one per cent of global demand.
A bigger role for Riyadh
The cut itself essentially keeps things as they are. The larger change is in who holds the controls. Member states have given OPEC+ chairman Prince Abdulaziz bin Salman al-Saud, the Saudi energy minister, the power to step in to steady crude markets, including the right to call a meeting at any time, Reuters reported. The next scheduled meeting is 5 October, but he no longer has to wait for it.
Saudi Arabia flagged last month that it might cut output to deal with what it sees as exaggerated price swings. The group is wary of volatility from weak sentiment, thin liquidity and fresh Chinese lockdowns this summer.
On Monday, the White House said President Joe Biden was prepared to take whatever steps were needed to shore up energy supplies and bring down prices.
Tight supply underneath
The physical market tells a different story from the price charts. Many OPEC states are pumping below their targets, and new Western sanctions threaten Russian exports. The G7 has agreed to cap Russian oil prices to cut the revenue funding the invasion of Ukraine. Russia has said it will stop selling oil to countries that back the cap.
A bigger cut in prospect
By early October, the talk had moved well beyond 100,000 barrels. Oil rose 3% on Monday after OPEC+ hinted that it could cut production by 1 million barrels a day, with a decision due at a Vienna meeting on Wednesday. Brent futures were up 3.89% at $88.38 a barrel and WTI up 3.86% at $82.56.
Prices have slid nearly 30% since mid-June, when they topped $120. Goldman Sachs cut its Brent forecast for October to December to $100 a barrel from $125, citing recession fears and a stronger dollar. “With another production cut by OPEC+ looming, prices could rise to $100 per barrel,” Viktor Katona, an energy analyst at Kpler, told Insider.
A deeper cut would probably draw criticism from the US, which has been urging OPEC+ to pump more while it fights energy-driven inflation.
Sources
- OPEC+ to cut oil output as recession fears weigh down demand
- Oil jumps 3% after OPEC+ mulls cutting its output by more than 1 million barrels a day
