OPEC+ considers cutting production by 1 million barrel a day

The Organization of the Petroleum Exporting Countries and their allies, known as Opec+, is considering an output cut to help prop up falling oil prices caused by concerns over a possible economic recession. U.S. West Texas Intermediate crude, which once had reached the peak of 123 U.S. dollars per barrel a day (bpd), plunged to 78 dollars bpd at the end of last month. Its prices decreased by 25 percent in the third quarter alone. Therefore, OPEC+ decided to trim output last month by 100,000 bpd. JPMorgan Chase & Co. predicted that OPEC+ might cut output by more than 500,000 barrels a day to stabilize prices to 90-100 dollars bpd.

This week’s OPEC+ meeting in Vienna, Austria will be the first in-person gathering since March 2020. Concerns about oil price hikes sending shockwaves to the global economy are growing as OPEC+ will discuss reducing output by more than 1 million bpd at Wednesday’s meeting. Currently, the value of the U.S. dollar is strong and crude oil is quoted in the U.S. dollar. Therefore, except for the U.S., European and Asian countries have struggled because oil prices are still one of the factors causing inflation despite plunging oil prices. Consequently, an output cut-induced oil price surge would inflict even more pain on an already battered global economy going through high inflation and economic slowdown.

Rapid oil production cuts will raise oil prices globally and become another economic risk factor amid the European energy crisis and global inflation. OANDA’s Senior Market Analyst Edward Moya told Bloomberg that energy traders turned pessimistic over the summer given global slowdown fears. Still, now it seems the risks for oil are to the upside. Adel Hamaizia, a visiting fellow at the Center for Middle Eastern Studies at Harvard University, said the move could play a role in making recessions worse in some countries. He explained that the production cut could further push inflation and hurt oil demand.


Hyoun-Soo Kim kimhs@donga.com