Oil Rises Nearly 3% After OPEC Agrees To Token Output Cut

by Ship & Bunker News Team
Monday September 5, 2022

The decision by the Organization of the Petroleum Exporting Countries (OPEC) to impose a token supply cut rather than a much-anticipated substantial output drop caused a big rise in crude prices on Monday, supported by reports of a deepening energy crunch throughout Europe and doubts that the U.S. and Iran will reach a nuclear agreement.

West Texas Intermediate advanced 2.3 percent to settle at $88.83 per barrel and Brent rose 2.9 percent to settle at $95.74 per barrel.

OPEC's announcement that it would trim production by 100,000 barrels per day (bpd) next month was viewed as a reversal of a symbolic hike of the same amount in September in response to lobbying from Washington.

Emily Ashford, an analyst at Standard Chartered, said, "Last month's adjustment provided a nod to the demands of the consumers, this monthly adjustment is a small nod to the concerns of the producers; the continuation of the monthly format is allowing OPEC+ to make small but reactive adjustments to market conditions."

Bill Farren-Price, head of macro oil and gas research at Enverus, added that although the cut "is inconsequential in volume terms, it is rather intended to send the signal that OPEC+ is back into a price-watch mode."

But Bloomberg noted that OPEC's decision "clashes somewhat" with its own outlook in that analysis from a recent OPEC+ committee showed global demand will be higher than supplies in the fourth quarter, causing inventories to draw down at a rate of 300,000 bpd.

Also on Monday came more evidence that Europe's energy crunch will intensify this winter: the continent has reportedly recovered about I million bpd of oil from Russia, a rate that has been maintained since early August and up from levels seen in late July (plus, total flows of Russian seaborne crude rose to 3.32 million bpd in the seven days to Sept. 2, compared with 2.95 million the previous week).

By comparison, the average flow of Russian crude to Asia dropped to 1.59 million bpd in the four weeks to Sept. 2, from more than 2.1 million bpd in April and May.
As for Iran/U.S. relations, which have been hyped perhaps overenthusiastically by news media, Josep Borrell, chief diplomat to the European Union, told reporters on Monday that with regards to the revival of the nuclear deal, "if the purpose is to close the deal quickly, it's not going to happen."

Indeed, tensions between the two countries are back on the rise: the U.S. on Sunday flew two nuclear-capable B-52H Stratofortresses over the Middle East in a show of force after Iran last week attempted to seize multiple U.S. sea drones operating in international waters.