U.S. oil producers seen staying cautious despite OPEC+ supply cut

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Crude oil futures closed Wednesday at their highest levels in three weeks after OPEC+ agreed to cut production by 2M bbl/day and U.S. data showed a second straight weekly decline in crude supplies.

Crude inventories fell by 1.4M barrels and gasoline stockpiles shed 4.7M barrels; analysts had forecast a rise in oil inventories and a smaller fall in gasoline supplies.

U.S. benchmark WTI crude (CL1:COM) for November delivery closed +1.4% to settle at $87.76/bbl, while December Brent crude (CO1:COM) ended +1.7% at $93.37/bbl, with both finishing at their highest levels since mid-September based on front-month prices.

OPEC’s cut is material but not as drastic as at it seems at first glance because several members already are producing below quota levels, S&P Global Commodity Insights’ Shin Kim said.

Capital Economics estimates the decision will result in an actual cut of just over 1M bbl/day, or ~1% of global supply.

The boost to energy prices from OPEC’s move could be temporary as the effects of central bank inflation fighting take hold, according to Leuthold Group chief investment strategist Jim Paulsen.

But Goldman Sachs sees the OPEC supply cut as “very bullish” for oil, raising its Q4 Brent price forecast by $10 to $110/bbl, and J.P. Morgan analysts see oil re-testing $100/bbl before year-end, which could prompt U.S. companies to raise output.

On the other hand, OPEC’s move does not change several constraints on U.S. producers – including limited equipment and workers, a lack of capital, and pressure from shareholders to boost returns rather than production – several executives told Reuters this week.

“Nothing is going to ramp up fast” despite the likely rise in crude prices, Patterson-UTI (PTEN) CEO Andy Hendricks said, noting at least six months of lead time are required to hire a top performance drilling rig.