ALEXANDRIA, Va.—OPEC+ agreed to cut oil production by 100,000 barrels per day, representing 0.1% of global demand, in October, reports CNBC. The cut was a surprise to energy markets, as experts widely believed the group would continue its production policy.
Last month, OPEC+ raised production by 100,000 barrels per day, and the group said in a statement that its decision to revert back to August levels of production was because the lift in production was “intended only for the month of September.”
The cut in production seems to show that OPEC wants to keep an oil price level at $100 per barrel, reports the New York Times.
“This shows that OPEC countries have gotten used to $100 oil,” Bill Farren-Price, head of macro oil and gas at Enverus, a market research firm, told the Times. “Despite the recession risks that are mounting, they are not prepared to give that up without a fight,” he added.
Futures for Brent crude, the international benchmark, were up by 3.5% on Monday to about $96.50 a barrel but have since receded. Brent Crude is around $95 per barrel while West Texas Intermediate hovers around $88 per barrel.
CNBC reports the cut by OPEC+ is a political statement and symbolic message from the group.
“The symbolic meaning of this cut is, I think, much more important for the market,” Ellen Wald, president of Transversal Consulting, told CNBC.
“It’s more of a political snub to President [Joe] Biden as well as the European Union, signaling that OPEC is going to go its own way and they want to protect those higher prices,” Andy Lipow of Lipow Oil Associates, told CNBC.
In July, President Biden visited Saudi Arabia and asked the leader of OPEC to increase oil production to decrease prices and aid the world economy.
Last week, the G-7 countries agreed to cap Russian oil prices; however, China and India have not agreed to stop purchasing Russian oil. According to Wald, even if some countries agree on not buying oil from Russia, other countries like India and China could purchase those barrels at a discount.
“I just don’t see how this works out in any way except to end up pushing up the price of oil for everyone, except for those who are continuing to buy Russian oil,” she told CNBC.
Russia is a co-leader of OPEC+, and over the weekend, the country said it was shutting off a key natural gas pipeline to Germany indefinitely. In response, natural gas futures in Europe spiked, reports the Times. Russia also plans to resist the G-7’s efforts to impose the price cap on Russian oil.
OPEC+ next meets on October 5. The national average price for a gallon of gasoline in the U.S. is $3.78, down 30 cents from a month ago and $1.23 from a historic high in July. However, the price is up 60 cents from a year ago.