Crude oil prices fell Tuesday, erasing gains made after OPEC+ unexpectedly agreed to a modest production cut on Monday. Crude futures had risen slightly on Friday but fell sharply for the week and in recent months, amid global economic concerns and the possibility of Iranian crude hitting markets.
U.S. crude oil prices edged 0.15% lower to under $87 a barrel Tuesday after trading slightly higher for much of the day. U.S. crude futures rose 4% briefly Monday morning, to above $90 a barrel, but faded to a 2% gain in the afternoon.
Meanwhile, the Kremlin has said Nord Stream 1 natural gas pipelines won't be fully restored until Western sanctions end vs. Russia for its Ukraine invasion. But U.S. natural gas futures on Tuesday skidded 8.4%.
Energy giants ExxonMobil and Chevron gained ground late last week, as oil stocks in general improved during the current pullback. On Tuesday, XOM dropped 0.7% to 94.95 while CVX also edged 0.5% lower.
Oil prices skyrocketed earlier this year, briefly hitting $130 per barrel in March after Russia invaded Ukraine. But crude oil futures have fallen more than 20% as rising interest rates stir recession fears. Concerns of possible widespread Covid-19 lockdowns in China are also to blame.
Oil Prices: OPEC Production Quota Cut Symbolic?
OPEC+, which includes the Organization of the Petroleum Exporting Countries and key allies such as Russia, agreed to cut production quotas by 100,000 barrels per day, starting in October. That comes after agreeing to up quotas by 100,000 barrels in September. While a production cut had been rumored as a possibility, most analysts had expected no change at Monday's meeting.
Monday's move may not have much impact on actual output. Several OPEC+ member nations are struggling to reach existing quotas. OPEC's output hit 29.6 million barrels per day in August, according to a Reuters survey. That was down from a daily average of more than 30 million barrels in April, and below the April 2020 high of 32.1 million barrels.
Still, Monday's quota cut could signal that OPEC+ is open to bigger, more substantive production cuts going forward if oil prices and demand lag supply.
Oil Companies Prioritize Buybacks Over Production Gains
OPEC+ is scheduled to meet again on Oct. 5, but the oil cartel decided Monday to authorize a meeting "anytime to address market developments, if necessary."
Saudi Energy Minister Prince Abdulaziz bin Salman told Bloomberg Monday that the production cut is an "expression of will that we will use all of the tools in our kit."
"The simple tweak shows that we will be attentive, preemptive and pro-active in terms of supporting the stability and the efficient functioning of the market to the benefit of market participants and the industry," he said in an interview with Bloomberg.
Iran Deal And Oil Prices
One reason why the oil cartel and its allies are willing to cut production is concerns about Iranian oil. The U.S. and other key powers appear to be making progress toward reviving the 2015 nuclear deal with Iran. If the countries come to an agreement, it could release an estimated one to two million barrels per day of Iranian oil into the world market.
"OPEC has already made it clear that if Iranian oil is allowed back on the market that they would adjust their production to not tank the price of oil," wrote Phil Flynn, senior analyst at the Price Futures Group, on Thursday.
U.S. Oil Output Gradually Recovering
Meanwhile, U.S. output was 11.82 million bpd in June, according to the Energy Information Administration. That was the highest level since April 2020, but still about 10% off the U.S. record of 13 million barrels set in November 2019.
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Russia Won't Restore Natural Gas To Europe
The Kremlin said Monday it won't restore full flow to the Nord Stream 1 pipeline to Europe until the West lifts sanctions over its Ukraine invasion. Last week, state-owned Gazprom shut down the pipeline, claiming it needed three days of maintenance. But Russia has dropped that pretext, and the pipeline remains shut.
Along with crude oil prices, U.S. natural gas futures climbed 3% at one point Monday, but later reversed slightly lower. On Tuesday, prices were down more than 4%.
European natural gas prices spiked on Monday after plunging last week despite the Nord Stream 1 shutdown ,but they fell back on Tuesday. European nations have been building up natural gas storage for winter.
The U.S. has been sending liquefied natural gas to Europe, taking advantage of the huge price difference between U.S. and European prices.
U.S. natural gas futures hit a 14-year high recently, but closed down 5.2% last week as European futures fell.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
