As we move into October, it seems that global Commodity markets are once again experiencing a change in fortune. After going through a relative downturn throughout most of the past summer, prices of Crude Oil (CL) are once again on the rise.
OPEC+ to Meet in Vienna
The twenty-three nation cartel known as OPEC+, which includes the original thirteen members of the Organization of Petroleum Exporting Countries as well as ten allied countries that joined the alliance in 2016, collectively holds nine-tenths of proven petroleum reserves on Earth. When this exceedingly important group meets for its first physical summit in over two years on Wednesday, crucial decisions are set to be made.
According to some sources, an Oil output cut of over one million barrels a day is on the table. This would represent the largest drop in coordinated Crude production since the height of the COVID-19 pandemic and may reflect concerns among decision makers from Venezuela to Saudi Arabia regarding a potential economic slowdown in the near future. (Source:Bloomberg)
Since June 8th, as of the time of writing, Oil’s price per barrel has dropped by 32%, with international benchmark Brent Oil (EB) falling by 28% as well. According to analysts, this decline may be attributed to lacklustre economic growth numbers coming out of much of the industrialised world. However, it seems that OPEC+ could likely move to cut production in order to prevent any surpluses from forming due to a global recession, which would push Oil’s price per barrel downward. If OPEC+’s members come to an agreement regarding a million-barrel cut, this could prevent the world’s current economic travails from cutting too deeply into Oil-producing nations’ profits. So far today, as of the time of writing, Oil has risen 4% while Brent’s price has increased by nearly 1%.
Much controversy could surround OPEC+’s meeting in Vienna, as the Russian Federation is still a full-fledged member of the cartel despite the continuing escalation of its conflict with southern neighbour Ukraine. According to one source, it is Russia itself that is expected to propose the potentially forthcoming million-barrel production cut this week. (Source:Reuters)
Despite increasingly strained relations with the West, especially following Russian President Vladimir Putin’s declared annexation of fifteen percent of Ukraine’s sovereign territory last Friday, the country’s status within OPEC+ seems to be remaining sturdy.
Should the aforementioned production cut come into effect, the consequences could ripple across the globe both economically and politically. Russia would stand to receive increased cash flow from fossil fuel sales, which could very well be used to fund the continuing war effort. Such a result would lessen, even if slightly, the weight of Western sanctions on the Russian Federation’s economy.
Additionally, the high inflation still putting pressure on citizens of industrialised nations’ pocketbooks could rise yet again. In the past week and a half, the average price paid at the pump by Americans for a gallon of gasoline has risen by just under 2%.
It is as yet unclear how OPEC+ will move to proceed this week, and what the implications for the global economy will turn out to be. At the moment, it seems that Oil’s rollercoaster ride has not yet come to a halt.