Oil prices look on course to head back to $90 plus levels as Opec+ confirmed its steepest production cut since 2020. And the grouping of oil producers seem intent on staying the course despite sparking the ire of US authorities who had been vehemently opposing any such cut.
Opec+’s plan is to take out two million barrels a day out of the production line and give the space for prices to push their way back to $100 or thereabouts.
According to an energy analyst, Opec+ had “telegraphed its move to go ahead with the cut and no one — most certainly the US — should have seen it coming”. (As oil rises, US stock markets have slipped into the red as more uncertainty roils the markets. The same could be repeated in Asian markets today.)
The Saudi Oil Minister, for one, has said categorically that there’s nothing out of place with the decision.
At the conclusion of Opec+ meeting in Vienna, Prince Abdul Aziz Bin Salman asserted: “What we are doing is essential and important to all oil exporters even those outside Opec+.”
The US issues with the Opec+ decision are multi-fold, not least the mid-term elections coming in November and with no clarity on who’s likely to come up with a majority. The Biden administration, however, wouldn’t want to see one thing — high gasoline prices drawing the ire of voters. Plus, there is the winter coming on and that would set off peak demand.
Talk in the energy market is that the US could release more of its oil reserves to set prices back under $90. Or at least hold the line there.
But can Opec+ hold the ground on the latest cut? “With Opec+, we have grown used to under promise and overdeliver,” said Edward Moya, Market Analyst at the consultancy Oanda. “The Saudis run this show and they know oil prices are at a make-or-break level. Oil prices were already headed towards $100 and it looks like Opec+ just transferred from the local train to an express one. The oil market is going to remain tight all winter and it seems energy traders are confidently expecting prices to be supported.”
What the Opec+ cut means
The latest agreed production cuts of 2 million bpd represent 2 per cent. This would come off existing baseline production figures, according to Reuters. “That means the cuts would be less deep because Opec+ fell about 3.6 million barrels per day short of its output target in August,” Reuters noted. “Under-production happened because of Western sanctions on countries such as Russia, Venezuela and Iran and output problems with producers such as Nigeria and Angola.”