Oil prices dropped marginally on Monday morning after jumping by almost $10 per barrel in the last week on the back of a larger-than-expected OPEC+ production cut, fuelling reports of likely profit-taking by traders.
Brent crude had dropped by 0.68% to trade at $97.24 per barrel while the American WTI dropped by 0.515 to trade at $92.13 per barrel, according to oilprice.com.
OPEC+ had on Wednesday last week announced it had set the nominal size of its production cut at 2 million barrels per day, although the Saudi Arabia Energy Minister, Abdulaziz Bin Salman, had said that the actual output cuts agreed upon were between 1 million barrels per day to 1.1 million barrels per day.
The decision by the group signaled an even tighter physical oil market ahead, pushing oil prices higher, although not as sharply higher as such a decision might have pushed them a couple of years ago when there was little else to affect the movement of prices.
However, there are now fears of a deep recession across some major European countries, caused mainly by an energy crunch that started last year and is serving to constrain oil prices from rising too high.
Despite several latest price forecasts by some financial institutions, most of which puts Brent crude at above $100 per barrel before the end of 2022, many others predict a demand drop in the immediate future.
Profit taking likely fuelling pressure on oil prices
According to an earlier Reuters report, a CMC market analyst had said that profit-taking might be the main reason for the pressure on oil prices.
It stated, “Profit-taking might be the main reason to pressure the oil prices today after five-day gains last week.’’
Analysts seem to be unanimous that the OPEC+ cuts lead to rising in crude oil prices, although some note that there is still a lot of uncertainty on international markets.
Some of that would disappear when the EU embargo on Russian crude comes into effect and when the G7 oil price cap on Russian oil kicks in. However, it is likely that the certainty, which will replace it, will be the certainty of higher oil prices.
What you should know
Recall that on October 5, 2022, the full OPEC+ group had agreed to cut crude oil production by its members by 2 million barrels per day from the month of November 2022.
The decision was taken after the 45th meeting of the Joint Ministerial Monitoring Committee (JMMC) and the 33rd OPEC and Non-OPEC Ministerial meeting on Wednesday, October 5, 2022, at the OPEC Secretariat in Vienna, Austria.
The output cut is coming on the heels of the uncertainty that surrounds the global economy and oil market outlooks and the need to enhance the long-term guidance for the oil market.
The production cut by OPEC+ had led to panic within the United States Government with White House officials and representatives meeting with influential members of the group from going ahead with such a decision.
The US had described the prospect of a production cut as a “total disaster” and warned that it could be taken as a “hostile act.”
