OPEC+ mulls largest output cut since 2020

Key takeaways:

1. OPEC+ has increased market expectations for a significant cut in production, up to 2 million barrels per day (Mb/d).
2. While this is the biggest announced cut since March 2020, these barrels aren’t effectively taken out of the market as some OPEC+ members are already underproducing meaning that it would be easier for them to comply with their adjusted (and lower) quotas.
3. Such a move indicates that the organisation is trying to achieve a certain price level.
4. The gloomy economic outlook is equally influencing the level of oil prices and is exhibiting downward pressure on them.
5. Historically, OPEC was slow at reacting to a collapse in prices. Therefore, some would argue that this decision came proactively to prevent a collapse in prices.
6. The decision also has a political dimension and clearly Russia is benefiting from it.
7. Russia’s production has been resilient to a certain extent compared to previous expectations when the war in Ukraine started, but the sanctions and the war are gradually taking their toll on the country’s production.
8. The decision will also impact the relations between the US and OPEC’s de facto leader, Saudi Arabia, as it has come just months after US President Joe Biden visited Saudi Arabia.
9. There is a strong correlation between Biden’s approval rating and oil prices. When the former increases, the President’s approval rating goes down. A decision by OPEC+ to cut production might give Biden’s opponents a boost.