October 7, 2022 (MLN): The Opec+ effective production cuts are likely to be less than 2 million barrels as it is being calculated based off the group’s current quotas and the majority of countries are already producing below this level, the realised cut will be far smaller, Fitch Solutions said in its commodity outlook.
“Brent crude has posted gains this week, rising by more than 5% to reach around $93/bbl at the time of writing. The increase can be attributed to Opec+ action, with the group meeting on October 5 and agreeing to a 2mn b/d collective cut, effective November,” it added.
Given that the cut is being calculated based off the group’s current quotas and that the majority of countries are already producing below this level, the realised cut will be far smaller, it added.
Nevertheless, it should help to tighten the underlying market and sends an important message, that the group remains committed to supporting prices.
On the other hand, it added that Brent has come under increased pressure from a deteriorating macroeconomic environment and rising fears of a recession in markets including the EU and the US. Several bright spots for demand remain, including economic reopening in China, a recovery in the aviation sector, and gas-to-oil switching over the northern hemisphere winter.
Nevertheless, sentiment in the market remains firmly bearish which sees Brent averaging $100/bbl next year.
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