Oil prices to top $100 per barrel mark on OPEC+ output cut: Analysts

The OPEC+ on Wednesday announced its decision to cut crude oil output by 2 million barrels per day, the new production cap levels will come into force from November 2022.

The decision by OPEC+ to cut crude oil output by 2 million barrels per day (bpd), or 2 per cent of global supply, is likely to see oil prices climb further, with Brent likely to top the $100 per barrel mark – up nearly 7.5 per cent from the current levels, said analysts. The new production cap levels come into force starting November 2022 and will remain in place until December 2023.

“We continue to hold a positive outlook for oil prices. With oil demand benefiting from gas-to-oil switching this winter, the likely end of OECD releases of strategic oil reserves and the European ban on waterborne Russian crude imports coming into force on December 5 amid lower OPEC+ crude production, we expect the oil market to tighten further. Expect Brent to move above the $100 per barrel mark over the coming quarters,” wrote Giovanni Staunovo and Wayne Gordon of UBS in a recent note.

That said, while OPEC+ meetings are now only planned to take place every six months, the group still has the ability to call an extraordinary meeting if market conditions warrant. Meanwhile Brent oil prices have surged over 13 per cent from their recent low of $82 a barrel hit around September 26 to over $93 a barrel now, data shows.

A further rise in oil prices, analysts said, will negate the impact of the move by global central banks, especially the US Federal Reserve (US Fed), to hike rates and tame inflation that hit a four-decade high.

“OPEC’s decision to cut production by 2 million barrels per day is likely to have consequences, even as some members of the cartel struggle to hit their current targets. We are currently witnessing a globally coordinated strategic oil reserve release, predominantly from the US, that aims to push the price of oil down and help consumers at a time when inflation has surged and the cost of living has intensified. The cut in (oil) supply could mean that the benefits of this program are negated if this move is fully implemented,” said Jamie Maddock, equity research analyst at Quilter Cheviot, a UK-based firm that manages £100 billion worth of investments across geographies.

Some analysts argue that some members of the alliance, such as Russia, already produce below the new lower cap level, the effective reduction in real barrels from the oil markets is less, but is still significant to sway oil prices in the coming quarters.

Paul Hickin, director at S&P Global Commodity Insights, for instance, says the actual supply that is likely to 'go off' from the market is around 800,000 barrels per day given the real production numbers of cartel members. The OPEC+ move, he said, has set a floor for oil prices for the next few quarters.

“The cut will be the biggest since May 2020 when the production was curbed in the backdrop of Covid. Now, $90 a barrel has become a floor for Brent oil prices that the OPEC+ will look to defend. Oil markets have been in a bearish trend since quite some time. US' SPR releases that come to an end in October, China's lockdown and its impact on the overall demand, and sanctions on Russia are some of the factors that will guide oil prices and OPEC+ decision from here on,” he said.