Oil prices surge to 5-week high after Opec+ agrees on 2 million bpd output cut

Crude prices have risen 10 per cent over the last week

Fears of a global recession and monetary tightening by central banks have weighed on oil markets since June. AFP

Oil prices posted their second weekly gain and highest in 5 weeks on Friday after the Opec+ alliance agreed to reduce output by 2 million barrels per day, its biggest production cut since the start of the coronavirus pandemic.

Brent, the benchmark for two thirds of the world’s oil, settled 3.71 per cent higher at $97.92 a barrel. West Texas Intermediate, the gauge that tracks US crude, closed up 4.74 per cent at $92.64 a barrel.

After registering their worst quarter in two years last month, oil prices gained 10 per cent over the past week as the 23-member supergroup of crude producers held its first in-person meeting in Vienna since March 2020.

“The Opec+ decision was a game-changer for the oil market, as it signals tight conditions will remain throughout this winter,” said Edward Moya, senior market analyst at Oanda.

Energy traders do not believe that US President Joe Biden’s administration will be able to do anything to stop the oil price rally, Mr Moya said.

After the Opec+ announcement, Mr Biden said he would continue to direct releases from the country’s Strategic Petroleum Reserve (SPR).

The reserve “has been tapped already and the US is dangerously depleting inventories, which could make them more dependent on Opec in the future”, Mr Moya said.

Abu Dhabi Commercial Bank expects the output cuts to support oil prices in the coming months.

“The Brent price move since the cut agreement has been contained, with the oil market having already priced in meaningful production cuts,” ADCB economists said in a research note.

The Opec+ move will “tighten” the market ahead of the December 5 EU ban on Russian oil imports and higher demand for heating during the winter, the lender said.

Russia, which exports about 5 million bpd, has issued a warning that it could cut supplies to countries that participate in an EU price cap on Russian oil.

The move, intended to keep the cost of crude from further rising, will add “further uncertainty” to Russia’s energy supply outlook, ADCB said.

On Wednesday, the Opec+ blamed rising uncertainty around global economic and oil market outlooks for the larger-than-expected production cut.

Opec+ is “here to stay as a moderating force to bring about stability”, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman said during a post-meeting press conference.

“Energy is something that can never be attended to in short-term tweaks and moves … the world energy markets need attendance, careful planning and investments.”

Growing fears of a global recession, a strong US dollar, surging inflation and monetary tightening by central banks around the world have weighed on oil markets since June.

The International Monetary Fund, the World Bank, the Institute of International Finance and the Organisation for Economic Co-operation and Development have all slashed their global economic growth forecasts for this year.

The IMF has downgraded its growth forecast for 2023 and expects a global output loss of about $4 trillion between now and 2026.