OPEC+ slashes oil production by 100K barrels per day as prices fall

[Hydrogen]

OPEC and its allied producers on Monday agreed to reduce oil production by 100,000 barrels per day amid concern regarding falling oil prices and lingering fears of a global recession.

Why it matters: The move reverses the group's decision last month to boost oil production for the month of September by 100,000 barrels per day.

• OPEC said in a press release Monday that, alongside its allies, it had agreed to "revert to the production level of August 2022...for the month of October."

The big picture: This is the group's first cut in oil production in more than a year and comes as crude oil prices have fallen 25% in the past three months, the Wall Street Journal reported.

• Saudi Arabia's energy minister warned last month that OPEC+ countries could cut oil production at any time, AP reported.
• Members of the group are concerned that a successful revival of the 2015 Iran deal could see an influx of Iranian oil hit the market, though tensions between the U.S. and Iran have spiked in recent days, with the U.S. conducting a military flyover of the Middle East over the weekend.
• Members are also concerned that a global recession, egged on by sky-high inflation, energy woes in Europe and economic slowdown in China spurred by the COVID-19 pandemic, could weaken oil demand, per the Journal.

What they're saying: "The President has been clear that energy supply should meet demand to support economic growth and lower prices for American consumers and consumers around the world," White House press secretary Karine Jean-Pierre said in a statement.

• "U.S. oil production is up by more than half a million barrels per day since the beginning of the year and is on track to be up by more than one million barrels per day by the end of the year, on the way to a new production record next year," Jean-Pierre added.

What's next: The group noted in the press release that it has plans to reconvene on Oct. 5, and could meet again in the meantime if necessary to "address market developments."



https://www.axios.com/2022/09/05/opec-cut-oil-production

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Do people prefer for oil production to rise or fall?

If oil prices rise, could we see a frenzy of activity spurred on by a search for alternatives to oil? Could it be similar to the natural gas crisis in europe where many are currently scrambling for firewood and other retro residential heating options? I wonder if there are good investment opportunities which lie along that line of thought.  

As far as peak oil goes, there have been many who claimed modern day society could not function without crude oil. They say that oil is too central in too many modern inventions and innovations for us to survive without it. Oil is used to make plastics, fuel, lubricant. There is a long list of items and goods we depend upon as daily necessities that are produced from an oil base. Some of which would be difficult to replace were oil ever to be priced outside of our budgets.

Many modern innovations of recent times were trends intended to reduce our reliance on oil. Nations sought to achieve energy independence rather than rely on middle eastern or russian oil as sole providers. Our series of technology trends and counter trends have remained cyclical for a long time. And we still do not have a clear answer to our riddle of whether modern society could survive without oil to fuel it.

I'm actually very surprised that we haven't seen venture funding thrown at stirling engines, gravity batteries, thorium based nuclear reactors, fusion energy and our usual suspects of alt energy start ups. Is it possible that credit and liquidity have dried up to such an extent that people are no longer throwing random cash at start ups. The silence here is deafening.

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[palle11]

The rise of oil is suppose to create more wealth for the OPEC nations and that will boost their economy but the issue is whether the boom goes down to common people in better governance and payment of wages. Like you have mentioned the products coming out from oil are many, so if we have oil increase it will also have effect on the other side. The process to get these products will increase too . IMO the products coming out of oil have made an alternative to oil become just an option because the importance of oil because of its byproducts have made oil a more important commodity than whatever replacement we can think of. If you don't process oil, you won't get those products from it and industries will die because they won't have what to produce.

[P2PECS]

The rise of oil is suppose to create more wealth for the OPEC nations and that will boost their economy....

Not really. Raising the price of something does not magically increase profits, as it can produce a contraction in demand that counteracts the margin of increase.

Do people prefer for oil production to rise or fall?

If oil prices rise, could we see a frenzy of activity spurred on by a search for alternatives to oil? Could it be similar to the natural gas crisis in europe where many are currently scrambling for firewood and other retro residential heating options? I wonder if there are good investment opportunities which lie along that line of thought. 

In my case, I would prefer them to go down, especially when we are in a context in which everything is going up, but making them go up by cutting production may make people consume less or look for other alternatives, as you said.

[palle11]

The rise of oil is suppose to create more wealth for the OPEC nations and that will boost their economy....

Not really. Raising the price of something does not magically increase profits, as it can produce a contraction in demand that counteracts the margin of increase.

How do you mean here when there is increase in price of oil ? The margin of profit doesn't really reduce for a country when the profit for oil is increasing , this is my opinion because I don't think there is additional cost accruing to production at the time, if OPEC has increased oil price, that doesn't affect cost of production. Production and cost are interactive so if there is increase in price and production cost is steady that will increase profit for the country.

[dothebeats]

Most people would surely be in favor of increasing oil production. It creates surplus, and the more product there in the market, the lower its price will be. Then again, it does not favor the producers of oil as this also means lower profits for them. Sometimes, I do not understand what their ultimate goal is. Just last month, EU is scrambling to find oil suppliers. But now that OPEC decided to ramp up the production of its member countries, they decided to halt it just because the price is going down. Are they really for the people or for the profits alone?

[jossiel]

Most people would surely be in favor of increasing oil production. It creates surplus, and the more product there in the market, the lower its price will be. Then again, it does not favor the producers of oil as this also means lower profits for them. Sometimes, I do not understand what their ultimate goal is. Just last month, EU is scrambling to find oil suppliers. But now that OPEC decided to ramp up the production of its member countries, they decided to halt it just because the price is going down. Are they really for the people or for the profits alone?

The intention is for clear.

The increase of production has been asked especially by those countries that are not oil-countries. They're for the profit and that's why even if they've been waited and asked to increase it, they didn't grant such requests.

I think I've heard it from someone that he read this quote in a book that there's this excerpt, "if you ever want to control the whole world then control oil".

[arallmuus]

I'm actually very surprised that we haven't seen venture funding thrown at stirling engines, gravity batteries, thorium based nuclear reactors, fusion energy and our usual suspects of alt energy start ups.

We are way early for all these and venture capital would only throw their money on something that could make them money in 5 years time frame or so. All these alternate energy options would require years of research and on top of that, getting the product onto the market is also a real problem as most people will not even bother to change into these new alternate energy

[adaseb]

I think it’s a little pre mature to do it this early. Sure price of oil is down but oil is still higher than a year ago. With what is going on in Europe with the energy shortage this is not a smart move.

They should of waited a few more weeks before dropping production. The way it is, it’s faster to stop production than to increase production.

[Moneyprism]

even though there are several OPEC members whose oil prices in their countries are currently experiencing an increase.. OPEC should be able to distribute their oil supply to countries that need this, so this will help reduce the impact of rising oil prices in those countries and help them reduce inflation

[avikz]

Do people prefer for oil production to rise or fall?

What kind of a question is that? Obviously as a layman I would want the oil production to increase so that the price can decrease. It will help a common man to save money from fuel. Why would anyone want the oil production to decrease so that it makes room for price increase?

Unfortunately, that's not how the business works! OPEC will decrease oil production to create demand supply gap so that they can maintain their profitability.

[EarnOnVictor]

This is not the first time OPEC and OPEC+ would be cutting or increasing supplies, crude oil will always bounce back or get knocked down as the case may be. What they are doing is manipulating the price of crude oil higher when their target on the Russian-Ukraine issues could not come to pass. Russia predicted crude oil to be at $300 per barrel due to sanctions, but the world has proved them wrong now.

However, the little cut in the supply of crude oil will amount to nothing, and those that cut it now might increase it later, so it changes nothing. What I know is that the market sentiment is a good second force and crude oil has likely bottomed for September at $81.14 (WTI). I expect it to close the month above $95.00.

[Gayong88]

In my opinion The answer isn't clear-cut. Some market analysts and economists say that they welcome the increase in supply, as it tends to lower prices—what's better for consumers. What's more, OPEC has no control over demand outside of its efforts to regulate production levels within its bounds. It is likely that a combination of the two will ultimately determine demand for oil in the coming months. On the other hand, some worry that the decrease in price could have a negative effect on global demand for oil. The truth of the matter is that all of these factors are likely to impact demand.

[AmoreJaz]

Do people prefer for oil production to rise or fall?

What kind of a question is that? Obviously as a layman I would want the oil production to increase so that the price can decrease. It will help a common man to save money from fuel. Why would anyone want the oil production to decrease so that it makes room for price increase?

Unfortunately, that's not how the business works! OPEC will decrease oil production to create demand supply gap so that they can maintain their profitability.

that's no surprise as it is a business after all. we can't deny that with the decrease of oil supply, will eventually give high price in the market. but yes, absolutely, we want oil production to increase. i don't know if the mass population would like a decrease supply of this. because they are not. only small percentage of people are in the above average of income. and if the price increases in the market, it means, more people will suffer.

[Sithara007]

As of now, the ones with maximum spare production capacity are shale oil producers in the United States. And they don't want to ramp up their production, because Biden has declared an open war against them. So I don't think that the crude oil prices may go below $90 per barrel in the short run.

And we are ignoring two major factors that will come in to play soon. A price cap on Russian oil will be imposed soon. If Russia rejects it and refuse to export their crude, then there will be a major shortage of crude in the global markets. This will push crude oil prices to all time high. And also, Americans will start to re-fill the SPR as soon as mid-term elections are over. That will also create an increased demand for crude.

[2stout]

This might not be as bad as it seems as some single countries alone can cut output easily by 100K; however, this 100K cut is spread out among many countries, so don't see a huge spike here.

[blue_hurricanger]

100K barrels per day isn't much. For example, the US alone consumes about 19 million barrels per day. Less than 0.5% compared to the US only, much less than the total consumption of oil per day for the whole world. Tho, this still raises some suspicion from me as this could be OPEC+ 's moves to test the water (to see US's reaction, perhaps?). If no one bats an eye, they could slash more oil production per day cite as prices fall. This opens up an understanding in the market that OPEC+ want their oil at a certain price range which set a very dangerous precedent for the outlook of oil price could be cheap again.

Shameless shill: More proof that we need to stop relying on fossil fuels for energy and under the thumb of the oil cartels. Renewable energy isn't enough to replace our need for energy. Only nuclear energy could change it and upset the oil cartels/fossil fuels.

[pooya87]

Due to recession in countries that were buying energy, the demand has already decreased. This 100k barrels per day decrease is partially because they want to prevent the price from falling down more than they want it to fall.

In any case the energy war is just getting started and we will surely continue seeing more of it for one or two more years at the very least and the worst days are still to come as the temperature drops and the demand for energy increases for heating.

[Sithara007]

Due to recession in countries that were buying energy, the demand has already decreased. This 100k barrels per day decrease is partially because they want to prevent the price from falling down more than they want it to fall.

In any case the energy war is just getting started and we will surely continue seeing more of it for one or two more years at the very least and the worst days are still to come as the temperature drops and the demand for energy increases for heating.

Ideally crude oil prices should be kept at ~$60 per barrel. If it goes up beyond that, then shale oil producers and other non-traditional oil producers will ramp up their production and this, in the long terms will be detrimental for the OPEC bloc. But OPEC wants the price to be around $100 to $120 per barrel. On top of that, countries such as Saudi Arabia and UAE are selling their crude at a premium of $5 to $10 above the benchmark prices to the European countries, since the latter are trying to avoid purchasing crude from Russia.

[darewaller]

Due to recession in countries that were buying energy, the demand has already decreased. This 100k barrels per day decrease is partially because they want to prevent the price from falling down more than they want it to fall.

In any case the energy war is just getting started and we will surely continue seeing more of it for one or two more years at the very least and the worst days are still to come as the temperature drops and the demand for energy increases for heating.

Ideally crude oil prices should be kept at ~$60 per barrel. If it goes up beyond that, then shale oil producers and other non-traditional oil producers will ramp up their production and this, in the long terms will be detrimental for the OPEC bloc. But OPEC wants the price to be around $100 to $120 per barrel. On top of that, countries such as Saudi Arabia and UAE are selling their crude at a premium of $5 to $10 above the benchmark prices to the European countries, since the latter are trying to avoid purchasing crude from Russia.

I understand the premium prices, but OPEC needs to figure out a way to keep the prices high to make more profit from selling oil, and yet they are also asked to pay more in that case as well, so it would be better at $60 for sure, that would allow Europe to have cheaper energy.

But to forget about all of this, we need to go with the renewable energy which requires an upfront payment but then it would be free to continue, just free money forever, a bit of costs but nothing major, and it allows cars to go very long with nearly no money, some places literally do not charge you, some charge you like 100 miles per cent levels, so it is joking amount, we need to move to that very quickly if we want to save some money.

[STT]

Not really. Raising the price of something does not magically increase profits, as it can produce a contraction in demand that counteracts the margin of increase.

It will be the revenue that matters, as per all large business.  Higher premium on less sales doesnt exactly help them out, problem is that OPEC was already quite close to its maximum output apparently or they might be happy with the lower prices but greater volume if that were possible.
  OPEC wanting to lower production could be taken as a bearish sign that world GDP growth  is not as strong as it should be therefore demand is not able to sustain the productive output of OPEC.   China is the most obvious indicator and we know China has suffered setbacks to its working population vs covid with poor immunity seen.  Most nations are now continuing regardless but China has chosen to lock down to zero quite often despite apparent weaker strains now in circulation.  Asia overall has often taken the flu variants as more dangerous long before recent years but only Communist China can prevent all trade done locally in quite such a uniform way.  Its such a large country it alters the whole world partly and I think OPEC also notices less economic activity by China.