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

Commodities Oct 04, 2022 03:05PM ET
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By Barani Krishnan

Investing.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 tumbles 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 Investing.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.”

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

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Comments (12)
Jason Crawford
Jason Crawford Oct 04, 2022 11:19PM ET
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They should cut by 4 million barrels a day if they really want to see the money pour in.
Thaddeus Wagaba
Thaddeus Wagaba Oct 04, 2022 11:19PM ET
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And what’s in there for you?
Vito Tagliano
Vito Tagliano Oct 04, 2022 7:15PM ET
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$100+ oil and Sky High Gas coming.. this is just start! Imo
Warm Camp
Warm Camp Oct 04, 2022 6:44PM ET
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OPEC can announce zero cut and oil price will go up, after short turbulence, anyway. Russian oil production declines and replacement does not exist. OPEC quotas, big or small, cannot be filled by any country now, except Saudis, and the latter will just sit and enjoy triple digit oil price.
Lee King
Lee King Oct 04, 2022 6:35PM ET
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Cartel how is this not illegal? Price manipulation. That why we need to embrace electric so these scammers will not have their way.
Warm Camp
Warm Camp Oct 04, 2022 6:35PM ET
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Sovereign countries has full right to negotiate and make trade agreements.
Alan Rice
Alan Rice Oct 04, 2022 6:03PM ET
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A 5M cut would be better.
Eric Moon
Eric Moon Oct 04, 2022 6:02PM ET
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isn't there an oil slick somewhere?
Drupal Grupal
Drupal Grupal Oct 04, 2022 5:56PM ET
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OPEC is already producing 3 millions a day less than their quota
Warm Camp
Warm Camp Oct 04, 2022 5:56PM ET
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They produce less, because they cannot produce more. The magical well is getting dry.
Brent Oil
Brent Oil Oct 04, 2022 5:14PM ET
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Kilduff is cleary short. lol
Barani Krishnan
Barani Krishnan Oct 04, 2022 5:14PM ET
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No, he's a 6-footer. LOL. But seriously, you can't doubt what he's saying, can yo?  i.e. OPEC  steadily underproducing 3 mbpd but gets a 3% price reward for planning a 2 mbpd cut (which it isn't producing anyway!)
Tom Michaels
Tom Michaels Oct 04, 2022 4:24PM ET
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Here we go, the opec rig job again.
Barani Krishnan
Barani Krishnan Oct 04, 2022 4:24PM ET
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You said it: 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.
Barani Krishnan
Barani Krishnan Oct 04, 2022 4:24PM ET
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“It’s B.S. if you ask me, these OPEC+ production quotas,” John Kilduff, partner at New York energy hedge fund Again Capital, told Investing.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.”
Stephen Fa
Stephen Fa Oct 04, 2022 3:47PM ET
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taking half position gains $USO
 
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