This is how we readied the Club portfolio for the big OPEC+ production cut

Published Wed, Oct 5 202212:44 PM EDTUpdated Wed, Oct 5 20221:33 PM EDT

Kevin Stankiewicz @in/kevinstankiewicz @kevin_stank

OPEC and its oil-producing allies agreed Wednesday to their largest cut to daily crude output since the early days of the Covid-19 pandemic, a decision the Club took steps to prepare for earlier this week by paring our energy exposure. The Organization of Petroleum Exporting Countries and a group of partner producers led by Russia, together known as OPEC+, said they are cutting oil output targets by 2 million barrels per day. The move is seen as an attempt to reverse a steep slide in crude prices since early June, when prices topped $120 per barrel before tumbling more than 30%. Oil rose over 1% on the heels of the announcement, adding to strong gains at the start the week. Club holdings Halliburton (HAL), Pioneer Natural Resources (PXD), Devon Energy (DVN) and Coterra Energy (CTRA) also were in the green. The details Officially, OPEC+ is cutting production by 2 million barrels a day starting in November, from their August production target of 43.856 million barrels a day. However, analysts say, the actual number of barrels coming offline could ultimately be less than the headline figure given that many OPEC+ members have already been producing below their targets. Francisco Blanch, head of global commodities at Bank of America, addressed the potential discrepancy in a CNBC interview Wednesday . "I think one of the big questions is, are we really going to get a 2 million barrel a day real cut or is it going to be a 2 million barrel a day nominal cut that is, essentially, readjusted by the fact OPEC itself is producing 3 million barrels a day under their actual quotas?" Blanch explained. "I think if you reallocate those countries that are underproducing and they don't actually cut, you'll get, probably, more like [a] 1 million, 1.2 million barrels a day actual cut," he added. The cartel's decision to lower production is not a complete surprise to markets, but the expected magnitude ratcheted up in recent days. For example, last week, some analysts had been warning of a reduction between 500,000 and 1 million barrels per day, well below the headline cut OPEC+ delivered Wednesday. In the days leading up to the decision, energy markets started to price in OPEC+'s looming production adjustment. Brent crude, the global oil benchmark, rose nearly 7% over the first two days of the week