January 27, 2023

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Oil jumps around $4 as OPEC+ weighs biggest production cut since 2020

Oil jumps around $4 as OPEC+ weighs biggest production cut since 2020

  • Sources say that OPEC + is considering cutting more than one million barrels per day
  • Interest rates and a strong dollar weigh on the markets

HOUSTON (Reuters) – Oil prices jumped nearly $4 a barrel on Monday as OPEC+ considers cutting production by more than 1 million barrels per day to prop up prices, in what would be their biggest cut since the start of the coronavirus outbreak. 19 pandemic.

Brent crude futures for December delivery rose $3.72 to $88.86 a barrel, an increase of 4.4 percent. US West Texas Intermediate crude rose $4.14, or 5.2 percent, to $83.63 a barrel.

Oil prices have fallen for four consecutive months since June, as the COVID-19 shutdown in China, the largest energy consumer, hurt demand while higher interest rates and a stronger US dollar weighed on global financial markets.

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OPEC+ sources told Reuters that the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, are considering cutting production by more than 1 million barrels per day ahead of Wednesday’s meeting.

An OPEC source added that this figure did not include additional voluntary cuts for individual members.

Most traders were expecting cuts of about 50,000 barrels per day, said Dennis Kessler, senior vice president of trading at BOK Financial.

If agreed, this would be the group’s second consecutive monthly cut after cutting production by 100,000 barrels per day last month.

“After a year of enduring extremely high prices, failed targets and deeply tight markets, the (OPEC+) alliance appears to be hesitant when it comes to acting quickly to prop up prices amid a deteriorating economic outlook,” said Craig Erlam, market analyst at Oanda. .

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Two OPEC sources said that OPEC+ missed its production targets by about three million barrels per day in July, as sanctions imposed on some members and reduced investment by others hampered its ability to increase production.

A preliminary Reuters poll showed on Monday that US crude oil inventories are expected to have increased by nearly $2 million last week. Stocks in the Cushing Storage Center, Oklahoma, built 730,297 barrels to 29.6 million barrels, according to a market source, citing Genscape data.

While spot Brent prices may strengthen in the short term, concerns about a global recession are likely to limit the upside, advisory firm FGE said.

“If OPEC+ decides to cut production in the near term, the resulting increase in OPEC+ spare capacity is likely to put further downward pressure on long-term prices,” it said in a note on Friday.

The dollar index fell for the fourth consecutive day on Monday, after touching a two-decade high. A cheaper dollar can support the demand for oil and support prices.

Goldman Sachs said it believed that the OPEC+ production cut could help remedy the exodus of large numbers of oil investors, which has underperformed fundamentals in prices.

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Reporting by Noah Browning Additional reporting by Florence Tan and Moyo Zhou Editing by Paul Simao, David Gregorio and Lisa Schumaker

Our criteria: Thomson Reuters Trust Principles.