By Adedapo Adesanya
Oil prices rose more than 1 per cent on Thursday, holding at three-week highs after it was agreed to tighten global supply with a deal to cut production targets by 2 million barrels per day, the largest reduction since 2020.
Brent crude futures settled at $94.42 per barrel after going up by $1.05 or 1.1 per cent, with the United States West Texas Intermediate (WTI) crude futures closing at $88.45 per barrel after adding 69 cents or 0.8 per cent.
Market analysts note that even though oil prices rose after the Organisation of the Petroleum Exporting Countries and allies (OPEC+) agreed to cut production, it did in a much more limited way than many would have predicted.
This remains to be seen how much of the cut would be physical and what the US would do in response to the move.
Due to a lack of clarity, there are estimates that the actual production cuts will be half a million barrels daily because of the gap between targets and output.
Indeed, OPEC+ has been undershooting its production targets for months, with the August figure at over 3 million barrels daily.
This led some analysts to suggest that the production cut agreed at this meeting would be more of an attempt to move targets closer to actual production than anything else.
Saudi Energy Minister Abdulaziz bin Salman said the real supply cut would be about 1 million to 1.1 million barrels per day and Saudi Arabia’s share of the cut is about 500,000 barrels per day.
Several OPEC+ members have struggled to produce at quota levels because of theft, underinvestment, and sanctions.
Until it becomes clear whether OPEC+ will be cutting actual production or moving targets, the price rally forecast ahead of the meeting in Vienna on Wednesday will probably wait.
Regarding the US reaction, President Biden has signalled that the likely response would be to release yet more crude from the Strategic Petroleum Reserve (SPR).
The Biden administration needs low fuel prices, and it needs them now and over the next month until the midterm elections.
President Biden expressed disappointment over OPEC+ plans and said the US, which is not a member of OPEC+ but is the world’s largest oil-producing country, was looking at ways to keep prices from rising.
“There’s a lot of alternatives. We haven’t made up our minds yet,” Mr Biden told reporters at the White House.
Also supporting prices, US crude inventories dropped by 1.4 million barrels to 429.2 million barrels in the week ended Sept. 30, the Energy Information Administration (EIA) said.
An investment bank, Goldman, raised its oil price target to $110 per barrel of Brent for the final quarter of the year, and JP Morgan also suggested Brent could rebound to $100 in the current quarter following OPEC+’s move to cut.
Meanwhile, headwinds remain, the strongest among them being the fear of a global economic slowdown, with recessions expected for some of the world’s biggest economies, such as Germany.
