Bill Watts, Markets Director at MarketWatch, joined Closing Bell's Kristen Scholer to break down the implications of OPEC's decision to cut oil production by 200 million barrels per day, which many fear could accelerate a global recession and raise gas prices in the U.S.

OPEC Production Cuts Raise Fears of Higher Gas Prices in Coming Months

Welcome back to Cozumel and cheddar news everyone. Well, Opec and its oil producing allies have decided to reduce oil output by two million barrels a day, which could drive up gas prices globally since june, we've seen oil prices jumped from 25%. Oil producers are concerned that global demand will slow down due to slowing global economic growth. And the move goes against the biden administration, which has pushed Opec's leader, Saudi Arabia to boost output. And the government has condemned Opec's decision. So joining me now is Bill Watts, markets editor at Market Watch. Bill, thanks so much for coming on. I think the big question that's hitting the doorstep of many americans is how do they prepare for another rise in gas prices? Right. I think it's gonna take some time here to sort out exactly what this means for uh, gasoline prices. There's a lot of, uh, number crunching going on around the cut, which actually maybe a little bit less than meets the eye given that Opec has been chronically producing underneath its existing quota. So, you know, in the end, the size of the cut is not really the two million barrel headline number. Um, you know, I think the early analysis from, you know what we're hearing from people who track gasoline and, and those those is that, you know, it should have an effect that will boost prices, but it's probably not gonna be enough on its own to push gasoline back up to where we were in the summer when we saw record gas prices over $5 a gallon for the average. We've, we've seen gas come back down quite a bit from there. You know, it's like gas buddy, you're saying this could maybe push prices back up by 15 to 30 cents. So you know, it's, it's something that will be noticed, but it's not the sort of return to those really awful numbers we saw back early in the summer. Okay, well, let's hope that that's the case because I think clearly what's still happening, Russia continuing its invasion of Ukraine, which we've seen bill has had an impact, uh, certainly on the energy market more so in europe here than in the US, but still an impact even as the biden administration has noted and we are heading in to these colder months. And so both of these factors, how do they impact the price of oil going forward? Yeah, one of the big wild cards going in into the winter is obviously what happens around Russia. What happens with the Ukraine war? We have this price cap proposal that is working its way through the G seven. Um, you know, Russia today, one of the reasons why we did see oil rally today a little bit, you know, came not necessarily from the, from the opec announcement which had been relatively well telegraphed, but we did see the Russian energy Minister talking about, you know, maybe they would cut production by another million barrels themselves if the price cap took effect. So I think there is a, you know, a wildcard there around what happens to Russian energy flows because they have been able to get oil out and it's been going to china and India and that's, you know, kept the global supply picture, you know, more in balance. So if that if we lose that, that could be another factor that could push prices up. Um when you put that on top of what Opec is planning to do and the fact that we do have global supply balances that are relatively tight, you know, that that could be a recipe for an increase in the winter. And I think that's something that people are looking out for. Right. So to that end, I guess maybe it's good to talk about broad volatility, right? Just how volatile, I guess oil prices, energy prices could be in these winter months, given the factors that we just discussed. Is it something that could see wild swings in the market? I think, yeah, we've been seeing and we've been seeing wild swings really across markets, across financial markets and oil has been no exception. In fact would argue that it was the speed and the scope of the fall in oil prices that we saw in the third quarter where retreated about 23, and september, you know, nearly 9% for oil, I think, you know, that was a factor that that really shocked the opec producers and it is part of the reason why they kind of coalesced around this production cut today. You know, they really, although the Saudi Energy Minister pretty vehemently denied that they have a price target in effect. Other opec officials have signaled that they want to see oil around 90 or $100 a barrel and that slide that we saw last month uh that you know, has taken us well below the pre invasion lows and you know, into the eighties seem to seem to rattle them. So, you know, I think volatility is has been a driver here and you know, we can certainly see volatility back on the upside, you know, if we see major disruptions. So it's always a, well I'm also Bill, I'm also I'm just also curious, obviously there are mounting concerns about a global recession, right? We see the U. S. Economy slowing down, but relatively speaking we might be holding up better here in the U. S. And vaccinations and treatments for covid uh than we are around the rest of the world. And so the fact that people might be pulling back in general, how does a global recession a potential global recession factor into the price of oil? Is that something that would bring the price down? For instance over time? Right. I think yeah, I think that goes back to to really what we what we have seen in recent months and in september when we saw oil really fall apart, it was really kind of a macro economic tidal wave there just in terms of of the market being very concerned about recession. So the same factors that we've seen sort of driving up Treasury yields, just expectation that the Fed is and other major central banks are going to keep hiking and hiking aggressively until they get inflation under control or something breaks was very much a factor in the oil market as well. This idea that you can see a global recession and that seemed to overwhelm uh, you know, concerns about supply. It was it was very much a worry about future demand that down. So, you know, that's sort of the seesaw we're on as we. So here's another question for you bill, obviously, clean energy, renewable energy sustainability. These are all major buzzwords, all factors certainly with Russia's invasion of Ukraine and where the economy and investments are going that are getting a lot more attention and more dollars, for instance, behind them. How does that impact the price of oil long term these new clean energy options that are getting investments and dollars behind them. Right. Well, I think in terms of, you have certainly seen criticism, you know, people arguing that we've under invested in traditional fuels and that has contributed to some of the shortfalls that we see now. Um, certainly under investment for a variety of reasons has been a factor really around the world and when it comes to crude oil production and that's a big reason why a lot of these opec producers aren't able to hit their quotas. Um, but you know, so you certainly see some calls to, to boost that in the near term to try to make up the shortfall. I think, over the longer term, just these oil price shocks and, and rising energy costs. Um, you talk to oil traders for the most part, they expect that to reinforce the desire to invest in alternative energy sources and it goes online, you know, long term. I think it's a positive for those things. Yeah, yeah, I would agree. Bill, we got to leave it there. Thanks so much for joining, of course, as we're all watching these gas prices, That's Bill Watts markets editor at Market Watch.