Oil prices dropped marginally on Monday after jumping by almost $10 per barrel in the last week on the back of a larger-than-expected OPEC production cut, fueling reports of likely profit-taking by traders.
Brent crude had dropped by 0.68 per cent to trade at $97.24 per barrel while the American WTI dropped by 0.515 to trade at $92.13 per barrel, according to oilprice.com.
However, there are now fears of a deep recession across some major European countries, caused mainly by an energy crunch that started last year and is serving to constrain oil prices from rising too high.
Despite several latest price forecasts by some financial institutions, most of which puts Brent crude at above $100 per barrel before the end of 2022, many others predict a demand drop in the immediate future.
According to an earlier Reuters report, a CMC market analyst had said that profit-taking might be the main reason for the pressure on oil prices.
It stated, “Profit-taking might be the main reason to pressure the oil prices today after five-day gains last week.’’
Analysts seem to be unanimous that the OPEC cuts lead to rising crude oil prices, although some note that there is still a lot of uncertainty on international markets.
Some of that would disappear when the EU embargo on Russian crude comes into effect and when the G7 oil price cap on Russian oil kicks in. However, it is likely that the certainty, which will replace it, will be the certainty of higher oil prices.
Recall that on October 5, 2022, the full OPEC+ group had agreed to cut crude oil production by its members by 2 million barrels per day from the month of November 2022.
The decision was taken after the 45th meeting of the Joint Ministerial Monitoring Committee (JMMC) and the 33rd OPEC and Non-OPEC Ministerial meeting on Wednesday, October 5, 2022, at the OPEC Secretariat in Vienna, Austria.
The output cut is coming on the heels of the uncertainty that surrounds the global economy and oil market outlooks and the need to enhance the long-term guidance for the oil market.
The production cut by OPEC had led to panic within the United States Government with White House officials and representatives meeting with influential members of the group from going ahead with such a decision.
