OPEC Makes Production Cuts, Again
When it comes to production cuts for the sake of jackin’ up prices, Saudi Arabia defers to hitting replay on DJ Khaled: “Anotha’ one”.
What happened: Over the weekend, the Organization of Petroleum Exporting Countries (OPEC) and its allies (the plus in OPEC+) agreed to extend the group’s existing supply cuts of 3.66 million barrels per day (bpd) into 2024.
Saudi Arabia, the de facto leader of OPEC, pledged an additional 1 million bpd, bringing the total cut to 4.7 bpd or about 5 percent of the world’s daily oil demand.
- All members but the United Arab Emirates —which saw an increased production target—will have lower production targets next year.
The cuts were the latest attempt by OPEC+ to stabilize the oil prices in the face of looming recessions in the West and shaky demand from China. Together, these have drawn in short sellers of oil.
Going after the haters: Saudi Arabia in particular hopes to punish short sellers by raising prices and creating a short squeeze in order to deter prices going any lower.
The effect of the apparent OPEC+ price floor in the West means exports to Europe and Asia should become more profitable and industry can hope for greater confidence in long-term prices.
Zoom out: The on-paper production cuts seem huge, but some OPEC members struggle to hit their quotas like they’re Elizabeth Holmes. This has some analysts suspecting the actual cut may be less than the headline.
As for these analysts (us), if we could predict the price of oil, we’d be writing to you from somewhere much sandier and warmer. Speaking of which…