OPEC and its allies on Monday agreed to a small oil production cut to bolster prices that have retreated on fears of a global economic slowdown.
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower early Tuesday giving back some of yesterday’s 3% gain.
The price action suggests that investors weren’t too impressed by an OPEC+ decision to trim output by 100,000 barrels per day in October, which some recognize as a largely symbolic move designed to put a floor in the market after a recent decline.
At 02:21 GMT, October WTI crude oil is trading $88.53, down $0.29 or -0.33% and December Brent crude oil is at $93.45, down $0.16 or -0.17%. On Friday, the United States Oil Fund ETF (USO) settled at $71.44, up $0.49 or +0.69%.
OPEC and its allies led by Russia on Monday agreed to a small oil production cut to bolster prices that have retreated on fears of a global economic slowdown, Reuters reported.
The oil producers will cut output by 100,000 barrels per day (bpd), amounting to only 0.1% of global demand, for October. They also agreed that OPEC’s leader Saudi Arabia could call an extraordinary meeting anytime if volatility persists, according to Reuters.
The decision is being viewed as mostly symbolic since it essentially maintains the status quo as OPEC has been observing wild fluctuations in oil prices.
After the decision was reached, Russia’s Deputy Prime Minister Alexander Novak said on Monday the OPEC+ oil output cut was merely a reflection of expectations of weaker global economic growth.
Helping to cap crude oil prices for weeks have been worries about a potential supply boost from Iranian crude returning to the market if Tehran is able to revive its 2015 nuclear deal with global powers.
Iran is expected to add 1 million bpd to supply, or 1% of global demand, if sanctions are eased, though the prospects for a nuclear deal looked less clear on Friday.
In response to criticisms over the deal, the White House said on Monday U.S. President Joe Biden was committed to take all steps necessary to shore up energy supplies and lower prices.
In my opinion, the OPEC+ decision was politically motivated and was a direct response to the possibility of Iran returning more oil to the market, which appears to be the wish of the United States.
Relations between the Saudis and the U.S. have cooled since President Joe Biden took office. While Biden needs lower oil prices to control inflation and help the Democrats in the November elections, OPEC+, led by Saudi Arabia, wanted the U.S. to know that it will dictate the price of oil.
Brent traders seem to be defending the $85.00 to $90.00 area, which is likely the “sweet spot” that OPEC and its allies would like to see prices stay. For WTI traders, the “sweet spot” is $81.85 to $88.26.
Monday’s move by OPEC+ suggests it remains ready to implement even stiffer production cuts if pushed by the U.S. and Europe. Meanwhile, Russia is even taking a harder stance at controlling supply by saying it will stop supplying oil to countries that support the idea of capping the price of Russian energy supplies over its military conflict in Ukraine.
James Hyerczyk is a U.S. based seasoned technical analyst and educator with over 40 years of experience in market analysis and trading, specializing in chart patterns and price movement. He is the author of two books on technical analysis and has a background in both futures and stock markets.