OPEC+ Quantum Of Cut Could Turn Into A Double Edge Sword
2022.10.05 03:19
Since February 2022, Russia has slashed and deliveries to Europe to nullify the sanctions imposed by the West in response to its invasion of Ukraine.
Undoubtedly, this resulted in sharp action-reaction in global geopolitics that further resulted in a steep price surge of natural gas and crude oil, consequently erupting recessionary fears globally.
OPEC+, which includes Saudi Arabia and Russia, is working on cuts above 1 million barrels per day (bpd). But still, the uncertainty looms over the price movements of the natural gas and oil until the final decision.
Undoubtedly, growing uncertainty over the size of production cuts will cause a knee-jerk reaction in the price movement could turn into a nightmare for the energy bulls as expecting big-size production cuts could push the energy prices upward.
But it is still unclear if reduction could include additional voluntary cuts by members such as Saudi Arabia, or if cuts could include existing under-production by the group as OPEC has been under-producing by over 3 million bpd and the inclusion of those barrels would dilute the impact of new cuts.
On the other hand, higher oil prices, driven by sizable production cuts, would attract the attention of the Biden Administration ahead of the U.S. midterm elections as the blame game for the higher energy prices that are increasing inflationary pressure globally continues.
Recovery depends upon a sizable cut in inflation that depends upon the cheaper energy price around the world.
Finally, I conclude that instead of resolving an old puzzle, what came first – the egg or the hen – the OPEC+ and the other major oil and gas producers should think collectively to resolve this immediate puzzle – what is needed first – Recession or Recovery.
Disclaimer: The author of this analysis does not have any position in Natural Gas and WTI Crude Oil futures. Readers are advised to take any position at their own risk; as Natural Gas is one of the most liquid commodities of the world.
