- Oil prices held near three-week highs after OPEC+'s production-cut announcement
- WTI is trading near $88/Bbl following a 10% gain over the past three days
- The cartel wants prices around $90/Bbl, says Nigerian Minister of State for Petroleum Resource Sylva
- Prices were also supported by Russian warnings of output cuts as the EU and the G7 nations backed a price cap on Russian crude
- The OPEC+ alliance agreed to cut production by 2 MMBbl/d for November onward, the largest reduction since 2020
- In reality, supplies may be cut by a smaller amount as the shared pro-rata among members would only require eight countries to reduce actual output, resulting in a real reduction of around 0.9 to 1.1 MMBbl/d
- The cut comes ahead of an EU embargo on Russian oil and would squeeze supplies in an already tight market
- Saudi Energy Minister Prince Abdulaziz Bin Salman said that unless the market changes, the supply curbs will be in place through the end of 2023
- The cut comes despite aggressive lobbying by the Biden administration for the group to continue production at current or higher levels
- President Biden expressed his disappointment with the "shortsighted action" in a statement from the White House, adding that the move came "while the global economy is dealing with the continued negative impact of Putin's invasion of Ukraine."
- In a statement, White House national security adviser Jake Sullivan said that the U.S. would release another 10 MMBbl of crude from the SPR in November and that "the president will continue to direct SPR releases as appropriate to protect American consumers and promote energy security."
- Alexander Novak, deputy prime minister of Russia, has warned that Russia may cut oil production in response to price caps imposed by western nations (BBG, Reuters)
- The remarks came as G7 nations approved a proposal to deny insurance, financing, brokering, and other services to oil cargoes priced above a level that has yet to be determined
- Yesterday, the EU also approved new sanctions, including support for a price cap on oil sales to third countries
- Novak said Russia "believes that this tool is in breach of all the market mechanisms. It could be very pernicious for the global oil industry…We will be ready to cut production (deliberately)."
- Additionally, several analysts have warned that if the EU and the U.S. move forward with a proposal to cap prices, Russia might cut its oil production by as much as 3 MMBbl/d
- Goldman Sachs raised its 4Q Brent forecast by $10 to $110/Bbl following OPEC+'s announcement, according to a note from analysts, including Damien Courvalin (BBG)
- They added that OPEC+'s 2 MMBbl/d target cut amounts to an actual reduction of 1.2 MMBbl/d versus the bank's November forecasts "and an even larger 1.4 MMBbl/d vs. our forward balances if sustained through 2023."
- Morgan Stanley raised its Brent forecast by $5 to $100/Bbl for 1Q23 while keeping its outlook unchanged for the rest of the year
- Citigroup's Ed Morse and Francesco Martoccia said that while the cut is large on paper, the effective reduction will be much smaller, and the move could backfire on OPEC+ if it hits economic activity and oil demand further