WTI crude prices (CL1:COM) rocketed 4.7% to over $83.20/bbl early Monday as OPEC+ considers cutting production by 1M bbl/day or more at the group’s meeting this week. The move would help prop up declining oil prices, which have been on a steady descent since hitting more than $120/bbl in late June. It would also mark the cartel’s second consecutive monthly cut – after it reduced production by 100K bbl/day in September – and the biggest since the early days of the pandemic.
Bigger picture: As gasoline prices in the U.S. soared to over $5 a gallon this summer, the Biden administration asked the Saudis and OPEC+ to pump more to bring down prices. The president also unleashed a record amount of barrels from the Stategic Petroleum Reserve to help put a lid on energy costs, and those efforts beared some fruit, especially when compounded with a slowing global economy. Growth worries are now everywhere, like in China, where COVID-19 lockdowns are hurting demand, as well as other economies that are suffering from consequences of rapidly rising rates and a surging U.S. dollar.
“OPEC+ are very focused on stronger U.S. interest rates and its impact on emerging-market demand,” added Amrita Sen, Director of Research at Energy Aspects. “Hence, they want to pre-empt any possible surpluses.”
Thought bubble: The latest dynamics once again show the key relationship between OPEC+ heavyweights – Saudi Arabia and Russia. The ties have been able to survive Russia’s invasion of Ukraine, and the country’s oil chief – Alexander Novak – may even show up in-person in Vienna despite being sanctioned by the U.S. on Friday. Besides propping up crude prices, the Saudia may also be prepared to slash output to keep some production capacity in reserve, given that Russian output is forecast to drop off later this year as the West tightens its growing list of economic sanctions.
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