Oil Slick

Oil Slick Oil prices continued to surge today, after major oil producers announced plans to reduce production starting next month. But the cuts won't be as meaningful as they seem, Barron's commodities columnist Myra P. Saefong wrote today. The Organization of the Petroleum Exporting Countries and their allies including Russia—referred to as OPEC+—confirmed recent speculation today with plans to cut 2 million barrels a day from their collective production quota. That's out of total global oil supply of about 100 million barrels a day. "The output reduction itself marks the largest output cut since the start of the Covid-19 pandemic as worries of a potential recession raised the risk of a slowdown in energy demand," wrote Myra. West Texas Intermediate crude rose 1.4% today, to $87.76 a barrel, stretching its gain to more than 10% just this week. That's still down some 29% from the March highs, however. “OPEC cited the uncertain outlook for the global economy as the main reason for the quota cut,” wrote Caroline Bain, chief commodities economist at Capital Economics, today. “However, the plunge in prices since their peak in March no doubt played a role.” The OPEC+ news today won't be the catalyst for a continued surge in the oil price, however, wrote Myra. That's because the cartel has recently been pumping oil well below its quota, so the reduction in the target will be partially about bringing it in line with actual production. The actual cut to OPEC+'s collective oil supply might be less than 1 million barrels a day. In fact, an equally significant effective cut to oil supply is coming from the U.S., not OPEC+. The approaching end of oil sales from the U.S. Strategic Petroleum Reserve will remove around 1 million barrels a day from the global total. Read the rest of Myra's report here.