Oil Jumps $4 as OPEC+ Mulls One Million Barrels Per Day Cut

By Adedapo Adesanya

Oil increased its value on Monday on considerations of reducing output by more than 1 million barrels per day to buttress prices with what would be the biggest output cut since the start of the COVID-19 pandemic.

Brent crude futures for December delivery rose by $3.72 or 4.4 per cent to $88.86 a barrel as the US West Texas Intermediate (WTI) crude futures improved by $4.14 or 5.2 per cent to $83.63 a barrel.

The Organisation of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, is considering an output cut of more than 1 million bpd ahead of Wednesday’s meeting.

That figure does not include additional voluntary cuts by individual members, one OPEC source was cited as saying, according to reports in foreign media.

That prediction comes as OPEC+ prepares to meet this Wednesday in an in-person gathering to discuss a possible oil production cut.

If agreed, it will be the group’s second consecutive monthly cut after reducing output by 100,000 barrels per day last month.

OPEC+ missed its production targets by nearly 3 million barrels per day in July, as sanctions on some members and low investment by others affected its ability to raise output.

Analysts note that if OPEC+ does decide to cut output in the near term, the resultant increase in OPEC+ spare capacity will likely put more downward pressure on long-dated prices.

The world’s inflation problem could also worsen if OPEC+ cuts production substantially as the snip would push prices higher, adding to the inflationary burden and effectively increasing the risk of a recession.

Prices have declined for four straight months since June, as COVID-19 lockdowns in top energy consumer China hurt demand while rising interest rates and a surging U.S. dollar weighed on global financial markets.

However, support also came as the US Dollar index fell for a fourth consecutive day on Monday after touching its highest level in two decades. A cheaper dollar could bolster oil demand and support prices.

Goldman Sachs said it believes the OPEC+ supply cut could help remedy the large exodus of oil investors that has left prices underperforming fundamentals.

The investment firm also sees Brent ratcheting up to $105 per barrel within the next six months, with WTI hitting $95 per barrel by the end of the year, with a six-month outlook eyeing $100 per barrel.