OPEC To Discuss Deeper Production Cuts To Underpin Volatile Oil Prices

Crude oil prices rose on Monday following reports that the Organization of Petroleum Exporting Countries (OPEC) and its allies will discuss further cuts in output at its upcoming meeting this weekend.

What Happened: OPEC could cut production by an additional 1 million barrels a day over the 5 million b/d reduction already in place, Reuters reports.

Existing curbs have had little impact on steadying oil prices, which have fallen by more than 10% in the past month alone. Since its September peak at around $98 per barrel, Brent crude has fallen by 16%.

It’s been a tough month also for the oil majors. Chevron CVX has fallen 13.3% in the month since it announced it was to buy Hess Corporation for $53 billion. Also in the past month, ConocoPhilips COP is down 6.6% and ExxonMobil XOM has lost 5%.

On Monday morning, however, Brent crude gained 2.2% to $82.38 a barrel, while WTI was up 2.3% at $77.77. United States Oil Fund USO, an exchange-traded fund that tracks the price of light sweet crude oil was up 2.4% at $72.45.

Why It Matters: Oil prices have fallen in response to signs of slowing global growth. Consumer spending has been hit by rising prices and higher interest rates. Commodity investors fear this will have a negative impact on demand for petroleum products.

Reflecting these fears, speculative positioning in oil net managed money dropped to a four-month low last week according to data from the Commodity Futures Trading Commission.

Demand has remained robust. The International Energy Administration forecast in its latest monthly oil market report demand growth of 2.4 million barrels per day in 2023.

Despite the production cuts already imposed by the Vienna-based oil cartel, supply remains plentiful. The amount of crude oil held around the world on tankers that have been stationary for at least seven days rose by 24% week over week to 87.98 MMBbls as of Nov. 17, according to Bloomberg, citing Vortexa data.

So what can oil investors expect from OPEC this weekend? Daan Struyven, energy analyst at Goldman Sachs said: “Our statistical model of OPEC decisions suggests that deeper cuts should not be ruled out given the fall in speculative positioning and in timespreads, and higher-than-expected inventories.”

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