Making the Cut
Last week, OPEC+ agreed to make production cuts of 2 mbd for the next 14 months from November 2022 to December 2023, representing a 2% reduction in global oil supply. This stemmed from a concern that the oil market is now out of balance which has put downward pressure on oil prices. Meanwhile a stronger dollar and a deteriorating economic outlook are impacting the demand outlook and thus reinforcing the pressure on oil prices. Crude prices rose on the news of OPEC’s decision but have yet to breach the $100/bbl mark due to the broader demand concerns outweighing the reduction in supply. The question now arises as to how effective these cuts will be in supporting oil prices and what impact this could have on the tanker market. In addition, it also raises further questions about the future of OPEC relations with leading oil consumers such as the US, following President Biden’s criticism of the plan and how this could accelerate the energy transition.
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