Crude oil futures are rallying on news that the Organization of the Petroleum Exporting Countries (OPEC) and its allies, OPEC+, could slash production levels, according to Bloomberg and The Wall Street Journal.
After last month’s decision to cut output by a tepid 100,000 barrels per day, new reports suggest that the world’s biggest 23-nation oil cartel could reduce production by as much as 1.5 million barrels per day.
Considering what is at stake, one million barrels a day might seem the more logical step. So far, Russia is reportedly in agreement, while Saudi Arabia has some reservations.
From Bloomberg:
A massive cut risks adding another shock to the global economy, which is already battling energy-driven inflation as well as the slowdown. Consumers including the U.S. have been calling for more production, with U.S. President Joe Biden visiting Saudi Arabia earlier this year in search of a new oil deal — and lower prices for Americans at the pump.
Biden is also trying to cut the revenues that Moscow receives for oil as part of efforts to weaken Vladimir Putin’s war effort. An OPEC+ cut would have the opposite effect.
Banks including JPMorgan Chase & Co. said OPEC+ may need to lower output by least 500,000 barrels a day to stabilize prices. Helima Croft, chief commodities strategist at RBC Capital Markets LLC, has said the group may opt for a cut twice that large.
While OPEC cites recession fears as the chief reason, the cartel is clearly trying to manufacture a floor for prices. Crude has erased all of its post-invasion gains and then some, leaving OPEC states, which are still recovering from the pandemic-era losses, in a vulnerable situation.
Still, as officials meet in Vienna on Wednesday, the energy markets will be pricing in every possible scenario ahead of the powwow.
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