OPEC+ agrees to cut token supply to stabilize oil market

OPEC+ has agreed to a token oil supply cut for October, a surprise move that shows the alliance is seeking to stabilize global markets after a weak economic backdrop triggered the world’s longest rout. price in two years.

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OPEC+ has agreed to a token oil supply cut for October, a surprise move that shows the alliance is seeking to stabilize global markets after a weak economic backdrop triggered the world’s longest rout. price in two years.

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The group will cut production by 100,000 barrels per day next month, bringing production back to August levels. In its final statement after Monday’s online conference, the cartel also stressed that it would be ready to convene another ministerial meeting at any time to address future market developments. Its next scheduled talks will take place on October 5.

The decision exactly reverses the September increase that was made in response to US President Joe Biden’s pleas to help lower oil prices. It could be a worrying development for consuming nations as they grapple with inflationary pressure from crude at $95 a barrel and the prospect of a winter energy crisis. Markets are set to tighten as the European Union sanctions Russian crude for its invasion of Ukraine.

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While the cut is “inconsequential in terms of volume, it’s more intended to send a signal that OPEC+ is back in a price watch mode,” said Bill Farren-Price, head of macro research. oil and gas at Enverus. The group may believe that this decision “will be enough to deter short sellers”.

Brent crude was up 3.6% at $96.40 a barrel at 1:48 p.m. London.

While traders mostly expected the Organization of the Petroleum Exporting Countries and its allies to hold steady, the coalition’s top producer had signaled a possible pivot. Saudi Energy Minister Prince Abdulaziz bin Salman said a few weeks ago that the OPEC+ alliance – which has just finished restoring production halted during the 2020 pandemic – is now considering cuts as a way to stabilize excessive volatility in global markets.

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Crude futures had lost 20% in the past three months on fears of a global economic slowdown, jeopardizing the windfall revenue enjoyed this year by the Saudis and their partners. China, the biggest oil importer, showed signs of an “alarming” economic slowdown, with apparent consumption falling 9.7% in July to a two-year low amid weaker business activity and severe Covid-19 restrictions. Meanwhile, the United States came close to recession and pursued a tighter monetary policy.

The new production cut suggests “there is a will to defend oil prices to stay above the $90 a barrel level,” said Giovanni Staunovo, commodities analyst at UBS Group AG.

The decision clashes somewhat with the OPEC+ alliance’s own outlook. Analysis by an OPEC+ committee that met last Wednesday showed global demand will outstrip supply in the fourth quarter, driving inventories down at a rate of 300,000 barrels a day.

New OPEC secretary general Haitham Al Ghais said in mid-August that he expects a “bullish” increase in demand from consumers keen to return to normalcy after two years of Covid restrictions.

(Updates with analyst comment in eighth paragraph.)

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