Oil soars on OPEC output cut concerns

Oil prices continued to rise on Tuesday, extending Monday’s gains, after falling to nine-month lows last week. WTI price climbed above $86 per barrel ahead of the much-anticipated OPEC meeting on Wednesday. If the WTI price declines, it may encounter support near $82.1 per barrel, while resistance can be found near $86.9 per barrel and higher up at the $90.5 per barrel level. 

OPEC+ will be meeting on Wednesday, to discuss production levels amid an energy upheaval and there is much speculation ahead of OPEC’s meeting. In its last meeting, OPEC+ cut down production by 100,000 barrels per day. The organization is expected to further curtail oil production to keep oil prices high and there are reports of a substantial output cut of at least 500.000 BPD. The cartel may even reduce oil output by as much as 1-2 million BPD. An output cut of 1 million BPD or more may send oil prices skyrocketing again ahead of the winter’s increase in demand. OPEC+ members strive to defend the $100 per barrel key level, despite mounting global recession risks. 

OPEC is determined to keep oil prices high, which have declined by as much as 25% since June. Slowing global economy and recession fears are undercutting oil demand pushing oil prices down. High oil prices may push fragile economies into recession even faster though, creating a vicious cycle. In addition, oil prices are driven down by the shift of most major Central Banks toward a tighter monetary policy. Aggressive rate hikes stifle economic activity, fuelling recession fears and pushing oil prices down. 

Oil prices are also supported by fears of further escalation in the Ukraine crisis. Russian President Vladimir Putin has renewed threats to halt all energy exports after western allies agreed to impose a cap on Russian oil prices. In addition, the energy crisis in Europe intensifies, as there were leaks in three major Russian gas pipelines, raising suspicions of sabotage. The cap on Russian oil prices is to be enforced soon and will provide further support to oil prices. 

Oil demand is on the rise, as China, the world’s largest energy importer, is ending lockdowns. The start of the winter season will also signal a rise in oil demand boosting oil prices. 

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Written by:
Myrsini Giannouli

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