Oil prices have continued to fluctuate amid wavering demand and growing economic instability. Early October, the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC partners agreed to low output to stimulate oil price recovery, although the US has called for producers to increase their output.
According to Statista, the 2022 average OPEC oil price stands at $104.01 per barrel as of September. Although this is better than the 2021 price of $69.72, there is no denying that prices have been affected by an energy crisis and sanctions on Russia, following its invasion of Ukraine.
OPEC decisions and oil prices
The OPEC+, which consists of both OPEC and non-OPEC communities, had first decided to reduce output in 2002. It is worth nothing that both Saudi Arabia and Russia are part of this group that decided to reduce oil output by 2 million barrels every day, igniting the wrath of US officials.
In sharply worded statements, US officials accused Saudi Arabia of colluding with Russia and “blunting the effectiveness” of sanctions against Moscow.
National Security Council spokesman John Kirby even stated that other countries confided in him that they felt coerced to support Saudi’s decision. Meanwhile, Saudi Arabia maintained that the decision was purely based on economic considerations.
OPEC Secretary-General Haitham Al Ghais defended the group’s decision to impose a deep output cut, saying OPEC+ was seeking to provide “security [and] stability to the energy markets.”
Analysts say that OPEC+ decision usually aim to provide fair pricing for both consumers and producers. But its recent decision seems to run counter to that.
Decision to reduce oil output is expected to hit consumers hard as the oil market faces great uncertainty due to sanctions, supply chain issues, and fluctuating demand.
The next OPEC+ meeting is scheduled for December 4.
The Future of Oil prices
On October 19, oil prices climbed as investors put their money into riskier assets like commodities and China, one of the top importers of oil, showed signs of renewed demand. Brent crude oil futures for December rose by 22 cents or 0.2%to $90.25 per barrel. In the earlier session, Brent crude had fallen by 1.7%.
“The small rebound in oil prices is more likely due to more positive sentiment on the equity bourses and return of risk on trades (rather) than industry fundamentals,” said Suvro Sarkar, lead energy analyst at DBS Bank in Singapore told Reuters. Oil prices seem to have received a boost from equity markets and US corporate earnings.
As the top importer of crude oil, China’s rising demand pacified concerned investors.
The EU sanctions on Russian crude and oil products will take effect in December and February, respectively. However, analysts believe that the overall market will mostly be bullish rather than bearish.
Sources told Reuters that the US administration has plans to sell 15 million barrels of oil from its reserves to meet demand and control oil prices. Meanwhile, US crude oil stockpiles have fallen by roughly 1.3 million barrels as of October 14.
Overall, global inventories are well below stable levels and when EU sanctions go into effect the situation might worsen. The US has plans to counter it by drawing from its Strategic Petroleum Reserve. OPEC+ is also worried that in the current situation, as a recession looms large, demand might go down considerably.
In September 2022, the average price of Brent crude oil was $89.76. On October 10, the price stood at $96.19. Experts predict that oil would stabilize around $90 to $100 a barrel and will stay that way for some time as the economy wavers.
