By Adedapo Adesanya
The crude oil market came to life on Tuesday on expectations of a large cut in production by the Organisation of the Petroleum Exporting Countries and allies (OPEC+) and a weaker US Dollar.
The price of the Brent crude went up by $2.52 or 2.84 per cent to $91.38 per barrel and the US West Texas Intermediate (WTI) crude improved by $2.43 or 2.91 per cent to trade at $86.06 per barrel.
OPEC+ may be considering an even larger cut than previously reported—at up to 2 million barrels per day, anonymous delegates told the media yesterday.
The group prepares to meet this Wednesday to discuss its oil production plans for November. It is assessing the state of the oil markets—and the current state of oil prices, which began to fall in June near levels that some OPEC+ members could find unacceptable.
Despite the growing worry of a severe global recession and the impact that would have on oil demand, the cartel feels that the markets are largely ignoring market fundamentals. Nevertheless, OPEC+ is considering a hefty production cut, an even heftier one that it was reportedly considering previously.
The first rumour was that Russia was pushing OPEC+ to implement a 1 million barrels per day production cut. The group was later reportedly considering a production cut between 500,000 barrels per day and 1 million barrels per day.
Shortly after, yet another source said that OPEC+ was considering an even larger cut of more than 1 million barrels per day. The latest news from OPEC+ delegates suggests that the group is considering yet another option: a 2 million barrels per day cut.
Aside from current oil prices, another factor in determining OPEC+’s production plans for November is the group’s available spare capacity—without which the group would be unable to control the market in the future.
An output cut of that magnitude would come shortly after the United States ends its 1 million barrels per day release of crude oil from its emergency stockpiles and could be welcomed as the group has failed to meet its planned output increases, missing in August by 3.6 million barrels per day.
Also boosting oil prices, the US Dollar was headed for a fifth daily loss against a basket of currencies as investors speculated that the US Federal Reserve might slow its interest rate hikes.
The US central bank potentially easing its interest rate hikes would relieve some worries of a US economic recession that could dampen crude demand.
Meanwhile, G7 sanctions on Russia will be implemented in three phases, first targeting Russian oil, then diesel and then lower-value products such as naphtha.
Sanctions from the G7 and the European Union, which is opting for a two-phase ban, are set to begin on December 5.
Aduragbemi Omiyale