As OPEC+ contemplates lowering output by more than 1M BPD, for its greatest decrease since the epidemic, to bolster the market, oil prices increased by more than 3% in early Asian trade on Monday.
By 0622 GMT, Brent oil futures had recovered $2.36, or 2.8%, from their Friday low of $87.50 a barrel. After falling by 2.1% the previous day, U.S. WTI crude was up 2.9%, or $2.27, at $81.76 per barrel. Oil prices fell for a fourth month since June as consumption slowed due to the COVID-19 lockdown in China, the world’s biggest energy consumer, and weighed on international financial markets.
Before its meeting on Wednesday, OPEC+ is discussing a production reduction of more than 1M BPD to maintain prices. If accepted, the group’s second straight month of output reductions will be after a 100,000-bed decrease last month. However, because several OPEC+ members are producing far less than their quotas, experts anticipate that the impact of the cut on supply would be much smaller than the headline figure.
In a note, ING analysts predicted that only a small number of producers would have to make cuts if their output goals were met. According to two sources from the producer group, OPEC+ missed its production goals by around 3M BPD in July as sanctions on some members and limited investment by others hindered efforts to increase output. In a note, ANZ analysts stated that the market would ignore any quantity below 500,000 BPD. Thus we could see a good likelihood of a reduction of up to 1M BPD.
The short-term outlook for a sharp increase in Brent oil prices is positive. However, consultancy FGE said concerns about a global recession could limit gains. According to Friday’s report, if OPEC+ decides to cut production in the short term, it could increase OPEC+’s spare capacity and put more pressure on prices in the long term.
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