Despite an initially lukewarm reaction to OPEC+’s decision to reduce output by a nominal 2 million bpd, oil prices look set for the biggest weekly gain since March, the first month after the Russian invasion of Ukraine.
Although prices are still well below the $100 per barrel seen by many banks and analysts as a likely price for Brent this quarter, they have made some sizeable gains this week, with WTI adding 11 percent, per Bloomberg data.
“Sentiment was already bearish in anticipation of a weakening global economy, and this decision should further tighten the market,” analysts from ANZ told Bloomberg.
"We believe that the price impact of the announced measures will be significant," Jorge Leon, senior vice president at Rystad Energy, told Reuters. "By December this year, Brent would reach over $100/bbl, up from our earlier call for $89."
This seems to be the overall opinion in oil analysis circles. The decision OPEC+ made this week was not explained in detail by the cartel but as the Saudi energy minister put it, he could not gamble with the market.
This motivation likely means that the cartel wants, at least formally, to anticipate the demand destruction forecast to result from the dimming global economy outlook amid persistent inflation by reducing supply. Yet with supply already quite tight, the decision adds a significant upward potential for prices.
This remains true despite the fact there is a significant difference between the nominal and the actual output cut: the actual cut will be around 1 million bpd because there is only a handful of producers in the cartel that have not been undershooting their production targets.
Yet the fact they are willing to cut is important at this point in time—two months before the EU’s embargo on Russian oil comes into effect, cutting almost 100 percent of Russian oil imports into the bloc.
By Irina Slav for Oilprice.com
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