Oil prices rose Wednesday after OPEC+ said it will cut production by 2 million barrels a day starting in November. The group said “uncertainty” surrounding the global economic outlook fed into its decision. President Joe Biden reportedly expressed disappointment over the decision. Loading Something is loading.
Oil prices turned higher Wednesday after OPEC and its allies agreed to slash daily oil production by 2 million barrels, extending a winning streak for the market that had seen prices soaring above $100 a barrel earlier this year.
The group, which includes Saudi Arabia and the United Arab Emirates, said at its meeting in Vienna the production cut will go into effect starting in November, marking the largest reductions since the COVID-19 outbreak accelerated worldwide in 2020.
West Texas Intermediate crude advanced by 1.3% to $87.65 per barrel. Brent crude, the international benchmark, rose 1.6% to $93.28. Oil prices rose for a third straight session. WTI had tacked on 8.8% in the previous two sessions ahead of the OPEC+ meeting. Prices on Wednesday also found strength from the US Energy Information Administration’s report showing weekly crude stockpiles fell by 1.4 billion barrels, confounding expectations for an inventory increase.
OPEC+ said its latest decision was taken “in light of the uncertainty that surrounds the global economic and oil market outlooks.”
The move comes as oil prices have tumbled from this year’s highs well above $100 a barrel, with gains sparked on concerns about supply shortages after oil major and OPEC+ member Russia invaded Ukraine seven months ago.
But prices have since been sliced down as worries grow that the global economy will be pushed into recession as central banks fighting high inflation jack up borrowing costs. A jump in the US dollar this year as the Federal Reserve hikes interest rates aggressively has also made purchases of dollar-denominated oil more expensive for holders of other currencies.
“The larger OPEC+ group has consistently failed to meet required production levels – an issue that seemed problematic earlier this year as the market was nervous about the potential loss of Russian barrels. However, global crude oil inventories have started to rise as demand cooled, the US released oil from strategic stockpiles and Russian production proved more durable than some had thought,” said Peter McNally, global sector lead for industrials, materials and energy, at research firm Third Bridge, in a note.
OPEC+ “will continue to need monthly meetings to manage the market. The looming EU ban on Russian imports takes effect on 5 December and OPEC, particularly Saudi Arabia and the UAE, could find themselves adding barrels back again if the situation proves messy,” said McNally.
US President Joe Biden reportedly said he was “disappointed” by the decision by OPEC+ and called it “shortsighted”. CNN reported earlier Wednesday the White House had attempted to dissuade OPEC+ from making deep cuts to its output targets. A supply reduction could push up US gas prices ahead of November’s midterm elections.
Biden in July met with Saudi Arabia’s de-facto leader Crown Prince Mohamed Bin Salman but failed reach a deal for the country to ramp up supply.