If OPEC and its merry band of associates were hoping  that their production cut would elevate oil prices – perhaps to that magic US$100 per barrel mark pretty please – those hopes have now been dashed by renewed recession fears.

The benchmark Brent price slipped down towards the US$91.651/bbl after rising briefly following the cartel’s decision to slash daily production by 2 million barrels per day while its US counterpart – the West Texas Intermediate (WTI) – dived down to US$85.85/bbl.

It follows IMF managing director Kristalina Georgieva’s warning late last week recession risks were rising across many economies and that uncertainty remained exceptionally high with the World Economic Outlook forecasting a 25% chance that global growth could drop to a historic low of 2% next year.

From OPEC’s point of view, China certainly hasn’t helped matters by persisting with its zero COVID-19 kick, which has resulted in Zhengzhou – known best for being an iPhone manufacturing hub – locking down one of its most populated districts.

However, the production cut wasn’t entirely ineffective given that it at least achieved the goal of drawing funds back to the oil market with Reuters noting that portfolio investors continued heavy buying of crude oil futures and options for a second week running.

Investors appear to be betting that distillate – diesel and gas oil – shortages are likely to get worse in the short term before any possible recession eases up on demand.

There is plenty of proof that they might be right with the US Energy Information Administration noting that distillate stocks had fallen by 4.9MMbbl to 106.1MMbbl in the week ending 7 October.

US upstream oil and gas activity rising

US oil and gas exploration and development continues to pick up with Baker Hughes noting that the number of operational rigs in the US had climbed by 7 over the past week to 769 units on 14 October.

While the US shale oil plays have no plans to jump on OPEC’s production cut as an opportunity to boost output – no doubt due to lessons learnt during the oil crisis in 2014-15 – the rising rig count nonetheless represents a slowly increasing level of activity.

This is enough for the US EIA to forecast that production from the well-known Permian Basin is set to rise by 50,000bpd to hit a record 5.453MMbpd in November while overall US shale production is expected to climb by 104,000bpd to 9.105MMbpd.

Where oil prices will go from here is anybody’s guess.

Should enough economies sink into recession, it is possible that OPEC+ would respond with further production cuts in order to keep prices inflated – a move that is likely to win them few friends and could accelerate the uptake of renewables.