- OPEC+ agreed to cut supplies by nearly 2 million bpd.
- The Joe Biden administration criticized the OPEC+ agreement as “shortsighted.”
- US crude oil inventories fell for the fourth week showing a rise in demand.
Crude oil (CL) futures prices increased on Thursday for the fourth time this week. OPEC+ decided to significantly reduce the global petroleum supply by cutting production by nearly 2 million barrels per day, the highest decrease since 2020.
The deal was reached between the Organization of Petroleum Exporting Countries (OPEC) and its allies, which includes Russia, known as OPEC+. This agreement comes before a European Union oil embargo, which would reduce supplies in a market that is already undersupplied and raise inflation.
The real cut would be less than the 2 million bpd drop agreed upon at the summit because production in some OPEC+ nations is below target levels. According to Saudi Arabia’s Energy Minister Abdulaziz bin Salman, the actual supply reduction would be between 1 million and 1.1 million bpd, and it was in response to rising Western interest rates and a deteriorating global economy.
The Joe Biden administration has criticized the contract as being “shortsighted.” The White House announced that President Joe Biden would keep evaluating whether to release additional strategic oil stocks to decrease costs.
According to a note from Citi analysts, “the final market impact would depend on the duration of the agreement. OPEC+ extended its Declaration of Cooperation until the end of 2023.” The analysts added that supply reductions will keep global inventories low for longer and tighten markets in 2023.
Prices were also boosted by a decrease in last week’s US oil stockpiles. On September 30, crude inventories decreased by about 1.4 million to 429.2 million barrels.
“We’re definitely seeing gasoline and diesel supplies fall pretty dramatically,” said Phil Flynn, an analyst at Price Futures Group in Chicago. “The mantra we’ve seen in recent weeks is the economy is slowing, and oil prices were down because of peak demand, but these numbers seem to be holding up much better than people would think.”
In a separate statement on Wednesday, Russian Deputy Prime Minister Alexander Novak suggested that Russia may reduce oil production to counteract the effects of price caps put in place by the West due to Moscow’s activities in Ukraine. This would further hurt supply in the global market and push crude oil prices higher.