Oil rose by about 1% Wednesday as OPEC+ announced its deepest production cuts since the 2020 COVID pandemic. This was despite a tight market and opposition from the United States to the cuts.
The U.S. government data showing a decline in crude oil and fuel inventories last week also influenced prices.
Brent crude oil rose 93cs or 1% to $92.73 per barrel at 10:44 AM EDT (14:44 GMT) while U.S. West Texas Intermediate crude (WTI), rose 68cs or 0.8% to $87.20 per barrel. Both contracts have risen sharply over the past two days.
The 2 million-barrel-per-day (bpd) cut from OPEC+ could spur a recovery in oil prices that have dropped to about $90 from $120 three months ago on fears of a global economic recession, rising U.S. interest rates and a stronger dollar.
According to Fiona Cincotta (senior financial markets analyst at City Index), oil had been rising in anticipation of the cuts.
Cincotta stated that a large cut will have a smaller impact on the real output of some members, as they are not meeting their production quotas.
August saw OPEC+ miss its production target of 3.58 million bpd, as many countries were already pumping below their quotas.
Jorge Leon, Rystad Energy analyst, stated that new output targets would be mainly borne by core Middle East countries like Saudi Arabia, UAE, and Kuwait.
According to Reuters, the United States was pressuring OPEC+ producers not to make deep cuts. This comes as President Joe Biden tries to stop a rise in U.S. gas prices before the midterm congressional elections on November 8.
This could increase crude oil prices, further fuelling inflation. This could give Russia an advantage ahead of an EU ban on most of Russia’s crude exports later in the year, and a G7 bid to limit Russia’s oil prices.
In July, US President Joe Biden appealed directly to Saudi leaders to increase production to control rising prices after Russia’s invasion of Ukraine earlier in the year.
However, the crude oil price has fallen over recent months due to concerns about dwindling supply and fears of a global recession.
