Crude oil price edged higher on Tuesday ahead of the OPEC+ meeting set for Wednesday. The coalition is considering further output cuts at a time when the market is jittery over central banks’ policy tightening and probable recession.
What’s driving the market?
The probable output cuts by the Organization of Petroleum Exporting Countries and its allies (OPEC+) is largely behind the gains on crude oil price since the beginning of the week. The coalition is scheduled to meet in-person for the first time since 2020.
Delegates have asserted that OPEC+ is considering cutting its production limit by upto 2 million bpd. This also includes smaller declines ranging between 1 and 1.5 million bpd. Such curbs will likely be founded on the each member’s contribution.
According to the CIO at Pickering Energy Partners, Dan Pickering, “The OPEC ministers are not going to come to Austria for the first time in two years to do nothing. So there’s going to be a cut of some historic kind.”
As it is now, a number of OPEC+ members have been finding it hard to meet their official quotas. As such, an enactment of further output cuts would allow them meet their new production limit without actually reducing their production.
On the one hand, the considered output cut would be the largest curb since the peak of the coronavirus pandemic in 2020. Even so, it may have a lesser impact on global crude oil supply.
Output cuts by OPEC+ will likely tighten oil supply even though the impact may be lesser. Even so, some analysts perceive this as a bullish driver that may have crude oil prices return to the psychologically crucial level of $100 per barrel.
Even so, that will also be subject to trade activities at a time when the Fed’s policy tightening has heightened concerns over a recession. With this in mind, Friday’s US nonfarm payrolls will avail cues on the Fed’s next move and what that may mean for oil demand and prices.