Oil futures rise after OPEC+ agrees to largest supply cut since 2020

Yahoo Finance Live anchors discuss the rise in oil futures after OPEC+ agreed to cut production by 2 million barrels per day.

Video Transcript

- White House now pushing back on that announcement, saying the president is disappointed by the short-sighted decision. November's cut of 2 million barrels per day is the largest supply cut since 2020. And naturally, off this cut, we've seen oil stocks rise. We've seen I think some concern creep back into the market. We have the peak winter demand season. We have Goldman Sachs out here now looking for $110 a barrel oil. So a factor I would say that played in the market rising the past week and a half or so, that would be the pullback in oil prices, that is now reversing.

- Yeah. One of the huge things as well to remember here is that we're looking at cuts. But there had already been some of the production that had still fallen short even going into this cut. So even with this 2 million, it's likely that we're not even going to see that full actual cut take place on a per day basis. I mean, OPEC Plus, it was hitting about 3.6 million barrels per day short of the target output that it had. And that was set back in August.

And so with all of this considered, some of the major areas to continue to watch is the reaction, of course, out of Russia, but then, additionally, where some of those energy prices start to actually take much more of a toll on the regions that see most of the OPEC oil actually flow into their regions too.

- Yeah. And there's so much geopolitics at work here, obviously, also because of Russia's invasion of Ukraine and all of the sanctions against Russia had pushed forward this move as well, even as the European Union is now preparing to put a cap on Russian oil prices. That's set to take effect in December. Of course, as you would expect, Russia has come out and made commentary about that.

The Biden administration has come out and made commentary about this OPEC Plus production cut. So there's a lot at stake here besides just-- well, I guess it's all intertwined. What's going to happen with the price of oil, the political ramifications of all of this at the same time that the Biden administration had made some overtures to Saudi Arabia. Now this happens. And so as you might imagine, they're not too happy about that.

- No. And I briefly mentioned that Goldman note off the top here. Let me just expand on it a little more. Damien Courvalin, the main oil guy, or one of the main oil guys at Goldman Sachs, $110 to $115 a barrel range. That's his new rate. He lifted it by $10. But he notes this too. Acknowledges price risks are skewed potentially even higher. So I would imagine one bad storm, one bad snowstorm this winter, are we talking $150 a barrel oil? Who knows? Maybe.

- The other huge thing to remember in this too is the countries that it's actually exported to. And that's what makes the relationship between Russia and China even more important here because if Russia and China have already netted their own side partnership as to where some of their energy sources would come in from or what would be exported into China from Russia, where China pre-pandemic and even 2020, that was the largest importer of some of the OPEC-produced oil.

And so now that you've got a direct correlation with Russia, that poses even more of a threat as to where prices are going to soar elsewhere because when you have some of the cuts that are going-- not just the cuts that are announced, but also just the ability to produce, then that's going to directly drive up some of the costs of gas and energy.

But then that is really going to dovetail into what you were talking about, Julie, and some of the geopolitical implications. And the White House, just add on to what you were mentioning, what they actually said was that the president disappointed by the short-sighted decision by OPEC Plus to cut production quotas while the global economy is dealing with the continued negative impact of Russian President Vladimir Putin's invasion of Ukraine. That coming from the White House.

- Well, and besides the US being able to now produce so much energy, you see the Biden administration pushing on some other levers. According to the "Wall Street Journal," may be easing up on some sanctions against Venezuela to allow Chevron to begin producing oil there, which would be a big, big change and reportedly would be in exchange for the Venezuelan government making some changes. But they're also-- even as we talk about these big geopolitical moves, we also have to talk about energy companies because energy stocks have been such winners--

- Exxon's been rocking.

- --for investors. Exactly. But this morning, Shell coming out with an update. And the stock is down along with some of the other oil majors. And the company is saying that its third quarter is going to be weaker here in particular in two areas, refining margins, which Exxon has also talked about potentially weakening, and in its chemical unit. So not directly with the exploration and production side of the business. But nonetheless, something to keep an eye on for people who have been riding those energy stocks all year long.