Insights + Resources

Market Update – OPEC+ Looks To Defend Higher Oil Prices

Sep 28, 2022

Oil prices are rising today as hurricanes in North America introduce concerns over possible disruptions of supply, coupled with an easing of the U.S. dollar.  But despite this respite, unease among Organization of the Petroleum Exporting Countries Plus (OPEC+) member countries continues over slower global demand and recession fears given weaker economic forecasts.,.

“The stronger dollar has exacerbated worries within the OPEC+ cartel” explained LPL Financial Chief Global Strategist Quincy Krosby “and it’s looking increasingly likely that they are going to try to defend higher oil prices”

The OPEC+ policy meeting next week, on October 5, should be of particular interest for markets as members continue to suggest that the possibility of production cuts will be considered. Small production cuts for October, amounting to a modest 100,000 barrels a day, were announced at the September meeting as the oil cartel tries to maintain the higher prices it has recently enjoyed.

The “+” part of OPEC+ was formed in 2016 consisting of ten non-OPEC oil producing nations, including Russia and Mexico. Russia is expected to propose production cuts of 1 million barrels of oil per day for November’s production schedule, and according to industry reports it is seriously being considered as $90 per barrel appears to be the price target OPEC+ wants to sustain.

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With weaker global macro-economic headwinds factored in, there are also important structural and supply side issues that present a more favorable situation for oil prices. There are expectations for demand from China, the world’s largest importer of oil, to resume imports, as the country emerges from the strict zero COVID measures that nearly closed down the economy. A stimulus package is also expected to be announced at the upcoming Chinese Communist Party plenum in mid-October that could spur Chinese demand for oil.  In addition, investment in oil exploration and production has slowed dramatically with inventories and capacity sitting at depressed levels which will likely not be able to keep up if demand does pick up.

Volatility in the energy markets will likely continue as commodity markets overall cope with rising interest rates globally, a stronger dollar, and recession worries hindering demand.  OPEC+, however, seems determined to preserve its dominance in a transitioning environment.

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