Oil Surges Again as OPEC Cut of 2Mln Barrels Per Day Rumored By

By Barani Krishnan

Fxgecko.com -- Oil market volatility reached new heights Tuesday amid talk of a possible cut of as much as two million barrels per day in output by OPEC+ in a bid by the oil producing alliance to end a four-month rut in crude prices.

Price surges and What to do if you are cheated by a fake foreign exchange platformtumbles ahead of the monthly meetings of the Organization of the Petroleum Exporting Countries and its allies are common, depending on how big the rumored change in production is. 

And a two-million bpd shift is as big as it comes in today’s scheme of things, especially for an oil cartel that has been struggling for more than a year to produce as it committed.

New York-traded West Texas Intermediate settled up $2.89, or 3.2%, at $86.52 per barrel, extending Monday’s 5.2% run-up. The rally comes right after a woeful September and third quarter for the oil market, where WTI ended the month down 12.5% and July-Sept period lower by 24%. 

Brent, the London-traded global benchmark for oil, settled up $2.94, or 3.3%, at $91.80 per barrel, adding to Monday’s 4.4% gain. Brent finished September down 11% and the third quarter lower by 22%.

The Financial Times reported that Saudi Arabia was seeking to raise oil prices by holding its first in-person OPEC+ meeting in Vienna in more than two years on Wednesday, in a move set to anger the U.S. and help Russia. The Saudis lead the original 13-member OPEC, which Russia and nine other oil-producing countries became allies of since 2016. 

Russia, facing U.S. and Western sanctions on its oil due to its invasion of Ukraine, has been selling its crude at a huge discount to market prices, undercutting others in OPEC+. Despite that, Riyadh wants to help the Kremlin due to the strategic importance of Russia as an oil producer — without whom OPEC+ would virtually collapse.

“This is not the Saudi Arabia of old and the U.S. has maybe been a little slow or unwilling to acknowledge that in energy matters,” Raad Alkadiri, an analyst at Eurasia Group, was quoted saying by the FT. “If they want a higher oil price, they’ve clearly indicated they’re going to pursue that, even if it results in a tit-for-tat response from the U.S.”

The size of the production cut at the OPEC+ meeting is still to be agreed upon, but Saudi Arabia and Russia are pushing for reductions of 1.0 million-2.0 million barrels a day or more, changes that could be phased in over several months, the FT reported. The move would probably trigger U.S. countermeasures, including the additional release of oil from the Strategic Petroleum Reserve (SPR), which the Biden administration has already drawn heavily from this year, the FT added.

But White House spokeswoman Karine Jean-Pierre told reporters on Tuesday that the Biden Administration is not considering new SPR releases.

Production commitments by OPEC+ have become increasingly suspect over the past year.  

OPEC+ fell short of its production target by 3.583 million barrels daily in August, according to an internal document of the 23-nation alliance reported by Reuters on Sept. 19. In July, the cartel fell short by 2.892 million barrels daily.

The cartel is to announce Wednesday its production quota for November.

“It’s B.S. if you ask me, these OPEC+ production quotas,” John Kilduff, partner at New York energy hedge fund Again Capital, told Fxgecko.com. “They haven’t hit their targets for months. So effectively, all they’ll be doing with a so-called production cut of 2 million barrels per day is dropping the bar on a target they never achieved anyway. And the market rewards their guile with a 3% price hike.”

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