Oil prices jump on reports OPEC+ will cut production

The price of Brent crude, the global benchmark, hit $130 a barrel in the wake of Russia’s invasion of Ukraine in February, when Western sanctions on Moscow raised fears about supply.

However, prices have steadily declined as those concerns were trumped by the prospect of slowing demand should central bank’s policy of raising interest rates to combat inflation cause a global economic contraction.

This week’s OPEC+ meeting will be the first face-to-face gathering at the group’s Vienna headquarters since the pandemic, adding to expectations that an important policy change is to be debated.

Any such production cut will greeted with dismay among the West’s net energy importers, as it not only may add to inflationary pressures but would be seen increasing prices to help support Russia, which is scrambling for revenue to pay for its invasion of Ukraine.

Stephen Innes, managing partner at SPI Asset Management, noted that worries about reduced demand in coming months was evident in markets, where the cost of oil futures were lower in contracts for next year.

“The strong dollar and weak demand in China and Europe pose significant headwinds resulting in increased backwardation in term spreads since mid-August and still signaling pessimism around the global economic outlook. A tepid response in futures to a production cut would chime with the negative message that lower U.S. inflation breakevens and industrial metal prices are sending,” said Innes.