Business
Turbulence Hits Wall Street as OPEC+ Springs Surprise Production Cuts
Dec
Wall Street finds itself in the midst of uncertainty as members of the OPEC+ coalition, spearheaded by Saudi Arabia and its Kremlin associates, have blindsided the market with unexpected production cuts totaling one million barrels per day.
Questions about OPEP+ Cohesion
Cohesion within OPEC+ is now a central concern. With an uncertain outlook for the next year, investors are questioning whether the coalition can stay united. The burden of supply cuts could fall on smaller exporters, affecting their revenues earmarked for development and social programs.
Voluntary Nature of Cuts Raises Concerns
Though additional cuts were implemented, the voluntary nature of these reductions has raised concerns about their strict enforcement. There’s fear that Saudi Arabia, which unilaterally reduced production by one million barrels per day this summer, might reverse its position if other countries don’t comply.
Dissonance within OPEC+
Dissonance surfaced last week, with delegates from Angola and Nigeria advocating for higher production quotas and Saudi Arabia proposing broader cuts. While the group extended many existing quotas, some countries announced voluntary cuts alongside extensions of restrictions.
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Impact on Prices and Wall Street
Oil prices, after an initial surge, eventually declined. U.S. benchmark crude fell by 2.4%, settling at $75.96 per barrel, approximately 19% lower than its late-September peak. Wall Street, initially perplexed, now watches with caution.
Economic and Political Challenges
This occurs amid Washington’s fight against inflation and the U.S. entering an election year, adding pivotal elements to the situation. While nationwide gasoline prices have decreased, some stations in Orlando, Florida, and El Paso, Texas, have started raising prices.
Wall Street Investors Skeptical Amidst Oil Price Predictions
Investors on Wall Street, predicting an increase in oil prices next year, argue that a lack of investment in new drilling will impact global supplies. However, previous OPEC+ cuts have not propelled the market as expected.
J.P. Morgan Warns of Future Volatility
Analysts on Wall Street point towards a 2024 market with excess crude. Despite record production in the Permian Basin and increased crude flow from Canadian oil sands, Wall Street remains vigilant about the duration and depth of OPEC+ cuts. J.P. Morgan warns that much depends on whether Saudi Arabia and Russia continue voluntarily limiting their production in 2024 and 2025, adding an additional layer of uncertainty to the oil market.