The Opec+ group of crude exporters opted for a token production cut of 100,000 barrels per day on Monday in a move calculated to keep prices stable in October.
While the price of Brent futures spiked by close to 2.9% to $95.74 a barrel in the immediate aftermath of the oil cartel’s decision to marginally cut output, it weakened again when trading resumed on Tuesday as the potential significance faded.
Opec said the “higher volatility and increased uncertainties require the continuous assessment of market conditions and a readiness to make immediate adjustments to production in different forms if needed”.
The group claimed that existing mechanisms of its prevailing declaration of co-operation offered the “commitment, flexibility, and means… to deal with these challenges and provide guidance to the market”.
The Opec+ agreement puts the combined production target of the 10 Opec members and their nine non-Opec collaborators at 42.1 million bpd for October, the same level as August, as the group reached a full unwinding of the cuts that were imposed in response to the collapse in demand caused by the Covid-19 pandemic.
Vandana Hari, the founder of Vanda Insights, a Singapore-based global energy market intelligence provider, told Upstream that while markets had “shrugged off” the token 100,000 bpd cut in the Opec+ target, they would “likely hold on to the bigger message the alliance and its de facto leader Saudi Arabia has delivered over the past fortnight — that the producers stand ready to curtail output to put a floor under prices”.
“That floor is widely regarded to be around $90 [per barrel] for Brent,” she noted.
Defying Western calls
The decision by the Opec+ grouping to cut output defies calls from Western nations to boost their output to curb inflation, as the world faces a widening energy crisis.
Saudi Energy Minister Abdulaziz bin Salman said on Monday that the Opec+ decision is an “expression of will”, and that the group will use all of the tools in its kit.
“The simple tweak shows that we will be attentive, pre-emptive and proactive in terms of supporting the stability and the efficient functioning of the market to the benefit of market participants and the industry”, he told the media.
As the market looks for fresh direction in the coming days, the latest weekly US oil stocks and demand data on Thursday will be keenly watched out.
While challenges around Opec+ maintaining its production targets and the lack of upstream investments are likely to provide momentum in oil prices, fears of a global economic recession and a likely Iran deal with western powers could unleash extra barrels and keep oil prices in stable territory, industry experts believe.