Oil Rises as OPEC+ Books Large Output Cut
Oil prices increased on Wednesday due to soaring supply-side concerns fueled by supply cuts by OPEC+ producers. OPEC+ agreed to cut its collective output limit by 2 million barrels day as it seeks to halt a slide in oil prices caused by the weakening global economy.
Trading data shows that the international benchmark Brent crude traded at $91.98 per barrel, an increase of 0.20% from the closing price of $91.80 a barrel in the previous trading session.
American benchmark West Texas Intermediate (WTI), trading at $86.59 per barrel at the same time, increased 0.08% after the previous session closed at $86.52 a barrel.
Investors are now awaiting the outcome of the OPEC+ meeting on Wednesday, when the group is expected to trim output in November in line with its demand forecast.
According to international media, the group is considering a cut of up to 2 million barrels per day (bpd), even larger than first thought.
Experts believe that a reduction in output on this scale would tighten the market and this tightness could be exacerbated by a rebound in Chinese demand. READ:‘MPR Cut Signals Plan to Keep Low Yields Fixed Income Market’
The member countries had agreed to cut production by 100,000 bpd in October. Late Tuesday, the American Petroleum Institute (API) also announced its estimate of a drop of over 1.77 million barrels in US crude oil inventories, relative to the market expectation of a 1.96 million-barrel rise.
Drops in inventories indicate an increase in crude demand in the US. The official oil stock data to be announced by the US Energy Information Administration Wednesday.
OPEC+ production cut is the biggest reduction by the oil group and its allies since 2020, but will have a smaller impact on global supply than the headline number suggests.
Several member countries are already pumping well below their quotas, meaning they would already be in compliance with their new limits without having to reduce production.
Even so, the cartel’s decision risks adding another shock to a global economy that is already battling inflation driven by high energy costs. The move would also irk the US — and potentially trigger a response from Washington.
President Joe Biden visited Saudi Arabia earlier this year in search of higher production and lower pump prices for Americans ahead of midterm elections in November.
The cut of 2 million barrels a day will be measured against the same baseline as the previous OPEC+ agreements, Amir Hossein Zamaninia, OPEC governor for Iran, told reporters in Vienna after the meeting.
Shared pro rata between members, that would require just eight countries to curb actual production and deliver a real reduction of about 880,000 barrels a day, according to Bloomberg calculations based on September output figures.
Oil prices were little changed near $92 a barrel in London.
Earlier on Wednesday, US officials were making calls to counterparts in the Gulf trying to push back against the move to cut production, according to people familiar with the situation.
Already, the White House had asked the US Energy Department to analyze whether a ban on exports of gasoline, diesel and other refined petroleum products would lower prices, Bloomberg reported on Tuesday. It’s a controversial idea but one that’s gaining traction in some corners of the Biden administration.
In Vienna, there was little sign before the meeting that the US pressure was working. United Arab Emirates Energy Minister Suhail Al Mazrouei insisted the decision was “technical.”
“It’s very important that it remains as a technical decision and it’s not political,” he told reporters. “That’s why it’s important to look at technical side of the equation and look at any concerns regarding the economy and the status of the economy.”
OPEC+ will no longer hold monthly meetings, Zamaninia said. The group’s Joint Ministerial Monitoring Committee, which oversees implementation of production cuts, will meet every two months, he said.
# Oil Rises as OPEC+ Books Large Output Cut#