NEW YORK (Pakistan Point News / Sputnik - 06th October, 2022) Oil prices increased for a third day in a row after OPEC+ announced what the media called a "deep" production cut, although some in the market said the planned reduction was well below the 3.5-million-barrel daily shortfall in the group's previously announced output target.
OPEC+ says the 2 million barrel per day cut it will enforce from November will be a substantial reduction on its production. But media reports from last month showed the oil producing alliance being some 3.583 million barrels short of its daily target for August, Prior to that, OPEC+ was short on its July production target by 2.892 million barrels daily.
Also, there was little information on where the reductions would come from i.e. which countries would be cutting and how much each would be doing.
Even so, crude prices jumped on the day, as the OPEC+ news combined with a plunge in weekly US crude and fuel inventories reported by the Washington-based Energy Information Administration, or EIA.
New York-traded West Texas Intermediate (WTI) settled up $1.24, or 1.4%, at $87.76 per barrel. WTI had fallen 12.5% in September and 24% in the third quarter.
Brent, the London-traded global benchmark for oil, settled up $1.57, or 1.7%, at $93.37 per barrel. Brent was down 11% last month and finished the July-Sept period lower by 22%.
But oil was not the only thing rallying on Wednesday: The Dollar and US bond yields surged as well, recovering ground lost since last week, on stronger-than-expected employment indicators that suggested a robust September jobs report from the US government on Friday. A rally in the dollar and bond yields typically weigh on commodity prices.
Also, President Joe Biden, in a statement issued by the White House, indicated that he would respond to the OPEC+ move by releasing even more oil from the US Strategic Petroleum Reserve, or SPR. The Biden administration has already drawn SPR stockpiles down to their lowest since 1984 and seems game to do more, in a tit-for-tat with OPEC+.
Kilduff said he understood that OPEC+ wanted to seize back control of the oil market with a large production cut. But unlike two years ago when the alliance was transparent on which countries would contribute to the cuts and by how much, this time there was no breakdown, he said.
"It will be hard for some to swallow this without proof, and thus prices will swing," Kilduff added.
Ed Moya, analyst at online trading platform OANDA, concurred with Kilduff that the market will likely see some inadvertent volatility in the near term.
"Oil should remain supported here... but upside will be capped well in advance of the $100 a barrel level," Moya said.