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Oil Rally Pauses Seeking More Clarity on OPEC Cut, U.S. Response

Commodities Oct 05, 2022 09:43PM ET
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By Ambar Warrick 

Investing.com-- Oil prices kept to a three-week high on Thursday, but appeared to have paused a recent rally as markets awaited more clarity on how the OPEC+ intends to carry out a massive supply cut, as well as a U.S. response to the move. 

London-traded Brent oil futures fell 0.2% to around $93.59 a barrel, while West Texas Intermediate crude futures rose 0.2% to $87.95 a barrel. Both contracts rallied about 2% on Wednesday and are up sharply this week.  

The Organization of Petroleum Exporting Countries and its allies (OPEC+), said on Wednesday it will cut supply by 2 million barrels per day (bpd) in order to counter recent weakness in crude prices, defying pressure from the United States to increase supply. 

The move, coupled with signs of a bigger weekly drawdown in U.S. crude inventories, spurred a sharp rally in oil prices, helping them recover further from an eight-month low hit in September. 

But the OPEC+ provided scant details on which of its members would cut supply, and when the cut would be implemented. The cartel also did not address how the cut would factor into a 3.5 million bpd shortfall in its daily production target. 

U.S. President Joe Biden indicated that the government is likely to respond to the OPEC cut by releasing more oil from its Strategic Petroleum Reserve (SPR). The Biden administration has already drawn the SPR to its lowest level since 1984, in a bid to reduce fuel prices ahead of the November midterm elections. 

Analysts cautioned that crude markets are likely to see increased volatility in the coming days, as more information is released about the cut and the U.S. plans to counter it. Goldman Sachs argued that the real size of the OPEC cut, considering the supply shortfalls, would actually be about 500,000 bpd. 

But the investment bank still raised its fourth-quarter oil price target to $110 a barrel. 

Strength in the dollar, stemming from hawkish signals from the Federal Reserve, is also expected to keep a lid on crude prices, while weakening global economic growth is expected to keep the demand outlook constrained. 

But on the other hand, further tightening of crude supply, due to sanctions against Russia, is likely to benefit prices. A harsh European winter is also expected to help prices by pushing up demand for heating oil.  

Crude prices have plummeted from annual highs on fears of weakening demand, especially in major importer China.

Oil Rally Pauses Seeking More Clarity on OPEC Cut, U.S. Response
 

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Comments (9)
Am Kh
Am Kh Oct 06, 2022 6:31AM ET
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The quotas cut is on OPEC’s website-
Hasan Tarek
Hasan Tarek Oct 05, 2022 11:59PM ET
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i's Very low world economy business farm,,
Gershom Zvi
Gershom Zvi Oct 05, 2022 11:43PM ET
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Biden’s Nursing home economy found “right time” to print fake money for studens loans in order to increase inflation just for midterm election no matter what are the consequences …
Nils Hullmann
Nils Hullmann Oct 05, 2022 11:43PM ET
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come on that's a lie.....it's called the inflation climate change reduction act.....so it will do exactly that
Donny Lang
Donny Lang Oct 05, 2022 11:40PM ET
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There is nothing Bullish about cutting 2 million barrels per day.....this trick doesn't work anymore....
Sreyppich Sreypps
Sreyppich Sreypps Oct 05, 2022 11:17PM ET
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heating oil
Tom Cur
Tom Cur Oct 05, 2022 11:11PM ET
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Wow, then Brendan respond reducing SPR more than he has done. Politics over country and people best interest. He just care about votes in November, but no matter what he does, Democrats will lose majority . Let's hope that there is not a national disaster or war escalation .
Tebogo Phetabosigo
Tebogo Phetabosigo Oct 05, 2022 11:11PM ET
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Isn't he trying to ease pressure in your pockets at the pumps when you refill? Don't be shortsighted and politicise everything when it is for your own benefit, sir/madam.
Dennis Chuck
Dennis Chuck Oct 05, 2022 11:06PM ET
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Hahaha! I love MBS! I love opec! Good job! Tell the americans to F off!
Rajesh Kumar
Rajesh Kumar Oct 05, 2022 10:58PM ET
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Clarity or no clarity, oil price will only go up as long as Russia Ukraine war continues. Everyone knows US will buy oil and give to Ukraine to continue fighting. Who wouldn't like to take a big check from US, for giving oil to Ukraine. There is no market theory, no economics, no sanity, just pure politics in oil pricing. All these news are just figment of imagination of few people as if OPEC+ will reduce their prices and damage their economy so Biden can continue supporting Zelensky in prolonging war and taking the world closer to nuclear war. Stupid President of Ukraine and US. They should take this war to UN.
Trumir Tamerlan
Trumir Oct 05, 2022 10:58PM ET
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i think you would take different view in case your neighbour would attack your country.
Cheburashka Russian
Cheburashka Russian Oct 05, 2022 10:58PM ET
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usa (by Zelensky) was bullying Russian speaking Ukrainians for years. Russia warned many times. no country would like to live with such a neighbor who oppresses people
John Healy
John Healy Oct 05, 2022 10:34PM ET
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I don’t think Joe could’ve been more short-sighted. “Strategic” Petroleum “Reserve” is exactly that. I’m all for reducing dependency on foreign oil, but maybe we should start by increasing our production of domestic oil. I disdain OPEC+ and would love nothing more than to live to see their oil wealth evaporate into sand, especially the ***Russians and Saudis. I’ve never been closer to buying an electric vehicle. It’d be my little way of lifting my middle finger in the direction of Mecca.
Tyler Phillis
Tyler Phillis Oct 05, 2022 10:34PM ET
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Amen. What would be better is if government stopped interfering with the energy markets altogether. Their control over US domestic supply in the form of Federal land “ownership” needs to end, too. This is the fault of the US taxpayer…and I’m speaking as a US taxpayer. We need to end federal government ownership of essential resources like oil and coal. The free markets have been proven to be the only engine of growth mankind has ever invented, we need to start trusting them.
Trumir Tamerlan
Trumir Oct 05, 2022 10:34PM ET
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my country is exact example when private ownership of key resources like electricity production, gas, cause majority of population is on the path to powerty because there is no control over price in extreme times like now
 
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