OPEC cuts production - how are oil prices shaping up?

06.09.2022 09:43|Conotoxia Ltd Analyst Team

On Monday, September 5, the OPEC+ meeting decided to reduce oil production. Although the reduction seems symbolic, it shows the cartel's potential determination to be flexible on changing demand conditions.

OPEC and its allies, including Russia, have agreed to cut output by 100,000 barrels per day since October, representing about 0.1% of global demand. OPEC+ may thus try to cope with macroeconomic difficulties and counter a potential increase in supply from Iran. Saudi Arabia had already stressed that it would cut production as soon as Iran, with the entry into force of the nuclear agreement, began pumping oil to global markets once sanctions were lifted.

It seems, however, that investors considered the decision to cut production largely symbolic, given the previous failure of some member countries to meet production targets. Saudi Arabia also stated at yesterday's meeting that OPEC+ is willing to take further steps to support the global oil market if necessary.

Since the beginning of June, oil prices have fallen by more than 25%. The reason? As interest rates rise, economic growth may decline, threatening recession or at least an economic slowdown and a drop in demand. This, in turn, could put pressure on the oil market. Nonetheless, a reduction in the price of crude oil, by almost 30 % in a quarter is good news for consumers, as it could lower the high inflation.

According to the EIA's projections, global consumption of crude oil and liquid fuels will average 99.4 million barrels per day throughout 2022, up 2.1 million barrels per day from 2021. EIA projects that global consumption of crude oil and liquid fuels will increase by another 2.1 million barrels per day in 2023 to average 101.5 million barrels per day.


Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)

Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

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76.23% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76.23% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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