Oil prices rose more than 1% on Thursday, remaining at three-week highs, after a deal to cut production targets by 2 million barrels per day, the largest reduction since 2020, was reached.
Brent crude futures settled at $94.42 per barrel, up $1.05 or 1.1 percent, while US West Texas Intermediate (WTI) crude futures closed at $88.45 per barrel, up 69 cents or 0.8 percent.
Oil prices rose after the Organization of the Petroleum Exporting Countries and allies (OPEC+) agreed to cut production, but in a much more limited way than many would have predicted.
It remains to be seen how much of the cut will be physical and what the US will do in response.
Due to a lack of clarity, it is estimated that actual production cuts will be half a million barrels per day due to the disparity between targets and output.
Indeed, OPEC+ has been falling short of its production targets for months, with the August figure exceeding 3 million barrels per day.
As a result, some analysts believe that the production cut agreed upon at this meeting will be more of an attempt to bring targets closer to actual output than anything else.
Saudi Energy Minister Abdulaziz bin Salman stated that the real supply cut would be between 1 million and 1.1 million barrels per day, with Saudi Arabia contributing about 500,000 barrels per day.
Because of theft, underinvestment, and sanctions, several OPEC+ members have struggled to meet quota levels.
The price rally expected ahead of the OPEC+ meeting in Vienna on Wednesday will probably have to wait until it is clear whether OPEC+ will cut actual production or shift targets.
In terms of the US response, President Biden has indicated that more crude from the Strategic Petroleum Reserve will most likely be released (SPR).
The Biden administration needs low fuel prices, and it needs them now and over the next month until the midterm elections.
President Biden expressed disappointment over OPEC+ plans and said the US, which is not a member of OPEC+ but is the world’s largest oil-producing country, was looking at ways to keep prices from rising.
“There’s a lot of alternatives. We haven’t made up our minds yet,” Mr Biden told reporters at the White House.
Also supporting prices, US crude inventories dropped by 1.4 million barrels to 429.2 million barrels in the week ended Sept. 30, the Energy Information Administration (EIA) said.
Goldman’s investment bank raised its oil price target to $110 per barrel of Brent for the final quarter of the year, and JP Morgan also suggested Brent could rebound to $100 in the current quarter following OPEC+’s move to cut.
Meanwhile, headwinds remain, the strongest among them being the fear of a global economic slowdown, with recessions expected for some of the world’s biggest economies, such as Germany.
