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OPEC+’s 2M bbl/day production cut signals the cartel has a new price floor for crude oil that might cause consternation for U.S. lawmakers but should prove lucrative for oil producers.
OPEC+’s “idea of market balance is at $90-$100,” Eurasia Group’s Raad Alkadiri told Barron’s. “They are willing to take proactive measures at a higher price than might have been seen in the past.”
Both WTI and Brent crude posted the largest one week net and percentage gain since March: Front-month November WTI (CL1:COM) ended the week +16.5% at $92.64/bbl, and December Brent crude (CO1:COM) closed +15% for the week to $97.92/bbl; also, front-month RBOB gasoline (XB1:COM) finished +15.4% at $2.7346.
OPEC+ said its decision was a matter of getting ahead of global economic weakness that will cause oil demand to fall and hurt prices.
Saudi Arabia is much less worried about losing market share than in the past, as U.S. producers raise production only slowly because they are seeking to satisfy investors who would rather see money spent on dividend payouts than on drilling new wells, according to Azi Salzman at Barron’s.
Alkadiri also noted Crown Prince Mohammed bin Salman is undertaking expensive public works projects, and more oil revenue is needed to fund those projects.
OPEC+’s production likely will “decline by only 1M barrels because many countries are already producing well below quota,” Commerzbank analysts said, although “this would still be enough to prevent the surplus that has been predicted for the final quarter of this year.”
Energy (NYSEARCA:XLE) easily topped the week’s S&P sector standings, +13.6%, rising for five straight days and scoring its biggest weekly gain since November 2020.
Top 20 gainers in energy and natural resources during the past 5 days: (PEGY) +337.1%, (LITM) +54.5%, (NINE) +41.6%, (MTR) +40.5%, (AMPY) +33.9%, (TGA) +32.4%, (PR) +31.7%, (TALO) +29.3%, (WTI) +28.1%, (CPE) +28.1%, (NBR) +28%, (KLXE) +27.9%, (PFHC) +27.5%, (USWS) +27.2%, (MTDR) +27.1%, (VIST) +25.3%, (RIG) +25.1%, (NEX) +24.6%, (APA) +24.3%, (MUR) +23.8%.
Source: Barchart.com
