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OPEC cuts production

Khatija Haque - Head of Research & Chief Economist
Edward Bell - Senior Director, Market Economics
Daniel Richards - MENA Economist
Jeanne Claire Walters - Senior Economist
Published Date: 06 October 2022


  • OPEC+ agreed to cut production by 2mn b/d at the first in-person meeting since the start of the pandemic. Saudi Arabia and Russia will bear the brunt of the cuts, with their targets reduced by 526k b/d respectively, accounting for more than half  the total cuts. Iraq, the UAE and Kuwait will also need to reduce output to comply with the new targets, which will remain in place until the end of 2023 unless changed in a future meeting. According to the new schedule, the UAE’s new production target is just over 3mn b/d, which implies a cut of 160k b/d from the August production target but the UAE has been producing  around 3.35mn b/d for the last two months. Many OPEC+ producers have not been able to meet their production targets however, so the actual decline in output may be closer to 1mn b/d rather than the nominal 2mn b/d. The decision to cut production will likely keep petrol prices higher globally over the coming months, and has been criticized by the While House as being “shortsighted”.
  • The ADP private sector employment survey showed a gain of 208k jobs in September, slightly higher than expected, and also an upward revision to the August reading to 185k. The ADP figures have historically not been a good predictor of non-farm payrolls, but the series was revamped in August. The Bloomberg consensus estimate for Friday’s NFP has been revised up to 260k from 250k at the start of the week.
  • US MBA mortgage approvals fell 14.2% w/w in the final week of September; while the 30-year fixed interest rate climbed to its highest rate since 2006, hitting 6.75%. The impact of Hurricane Ian on applications should however not be ignored, with applications in Florida falling 31% week-on-week.
  • The US Services PMI came in fractionally better than expected in September, up 0.1pt to 49.3 while the composite index improved to 49.5 from 49.3 in August. Both show a slight contraction in the services sector last month, but the ISM services index suggests the services industries have been more resilient, coming in at 56.7 in September, down from 56.9 in August and above forecasts. The ISM survey also showed in increase in employment last month and easing price pressures for businesses.
  • The September Eurozone composite PMI provides further evidence slowing business activity across the Euro area. The Eurozone composite index has now been below the 50 no-change mark for three consecutive months, with the value of the index reaching a 20-month low in September of 48.1, from 48.9 in August. The Eurozone services PMI extended its fall into contractionary territory, falling to a value of 48.8 in September from 49.8 in August. Underlying this deterioration was declining new business volumes. Weak demand, together with continued inflationary pressure has likely buffeted business confidence, which fell to levels last seen during the Covid-19 pandemic.  At an individual country level, only France and Ireland’s service PMI index values were above the 50 no-change mark. In contrast, Germany’s service PMI value fell sharply on the month, to 45 from 47.7 in August.
  • The September UK composite PMI signaled a continuation of the contraction in manufacturing and services activity that started in August. The Composite index fell to 49.1 (higher than the Flash estimate of 48.8) from 49.6 in August. The decline in reflects a contraction in activity in both the manufacturing and services sub-components on the month. Marking the end of an 18- month period of expansion in service sector activity, the UK Services PMI fell to 50.0 from 50.9 in August. Respondents highlighted declining volumes of new business, as households attempt to reign in discretionary spending in the face of high inflation. The survey results point to weak levels of optimism amongst service providers, with business activity expectations for the next 12 months at its lowest level since May 2020.
  • Egypt’s current account deficit in the final quarter of fiscal 2021/22 fell to USD 2.96mn, compared to USD 5.79bn in the January-March period and USD 5.13bn in the corresponding quarter a year earlier. Tourism inflows picked up to USD 2.56bn as the recovery in global travel from the pandemic continued, even despite the effect of the war in Ukraine on visitors from Ukraine and Russia. However, portfolio outflows were at USD 3.74bn. Remittances meanwhile remained strong at USD 8.28bn, from USD 8.05bn in April-June 2021. Investment by GCC states in Egypt drove net FDI up to USD 1.59bn, compared with USD 472.2mn a year earlier. In other data, net foreign reserves rose in September for the first time since April, picking up to USD 33.19bn from USD 33.14 the previous month.

 Today’s Economic Data and Events

  • 10:00 Germany factory orders (Aug) forecast -0.7% m/m
  • 16:30 US initial jobless claims (Oct 1) forecast 204k

Fixed Income

  • US Treasuries sank overnight, reversing a few days of gains. Messaging from Atlanta Fed president Raphael Bostic pushed back against any plan accommodation in policy in the near term, suggesting rather that the Fed will get rates to a restrictive level and hold them there. His counterpart at the San Francisco Fed, Mary Daly, said the Fed would need to see a “downshift” in data before it moves lower on rates and until that is observable, the central bank would “keep doing what we’re doing.”
  • The 2yr UST yield ended the day about 6bps higher, closing at 4.1481% while the 10yr UST yield rose by nearly 12bps to 3.7528%. That helped to flatten the curve by about 7bps overnight to 40bps. Markets are mainly pricing in a 75bps move at the November FOMC although there is a chance of a smaller move.
  • European bond markets fell sharply as the eurozone and UK stare down recession ahead. Yields on 10yr bunds rose by 16bps to 2.025% while similar maturity French yields added 18bps to 2.633%. In the UK, Liz Truss’ appearance at a Conservative party conference failed to inspire much of a turn around in UK assets with gilt yields up 16bps to 4.021%.
  • PIF, Saudi Arabia’s sovereign wealth fund, raised USD 3bn in an initial green bond. The issue was split across three tranches with a 5yr USD 1.25bn priced at UST+125bps, a 10yr USD 125bn at UST+165bps and a USD 500m 100yr at 6.7%.


  • The US Dollar snapped some recent losses overnight, trending higher with a general move away from risk. EURUSD fell by about 1% to settle at 0.9884 while GBPUSD gave up most of the previous day’s gains, falling by 1.3% to 1.1326. USDJPY added another 0.35% to 144.64.
  • Commodity currencies had a more mixed performance with USDCAD rising by 0.8% to 1.3619, despite higher oil prices which should notionally be a positive for the Canadian economy. AUDUSD fell by 0.2% to 0.6488 while NZDUSD added 0.14% to 0.5739, fading gains from earlier in the day following another 50bps hike from the RBNZ.


  • The strong rally in equities came to an end on the prospect of higher oil prices as OPEC+ announced a planned cut and Atlanta Fed president Raphael Bostic pushed back against the prospect of a Fed pivot – one of the driving factors of the gains in previous sessions. The losses were fairly minor compared to recent gains however, as the Dow Jones, the S&P 500 and the NASDAQ dropped -0.1%, -0.2% and -0.3% respectively.
  • Similarly in Europe, the benchmark indices slipped, though at a sharper pace than in the US as the outlook there continued to deteriorate. The UK’s FTSE 100 dropped -0.5% while the European composite STOXX 600 ended the day down -1.0%.
  • Locally, the ADX lost -0.1% and the DFM fell -0.8%.


  • Oil prices rallied on the news that OPEC+ would cut production by 2m b/d from November and maintain the producers’ alliance until the end of 2023. Existing baseline levels for cuts have been maintained and OPEC+ would convene every six months, rather than monthly as they had been doing.
  • Given that so many producers within OPEC+ are already failing to hit target levels, the new “cut” output is higher than many members’ current production. Hence 2m b/d is likely to end up being closer to 1m b/d in terms of actual cuts to output.
  • Brent futures rallied by 1.7% to USD 93.37/b while WTI added 1.4% to USD 87.76/b. Our expectation is that oil markets would be tightening going into 2023 and the OPEC+ will help to expedite that process.

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