How Opec+ Influences Oil Prices

COLUMN: Cartels have one – and only one - raison d'être: push prices higher. OPEC, the most famous of all of them, is a textbook example. So why is Saudi Arabia, which leads the group, driving prices down? Ostensibly, the kingdom is trying to reestablish discipline among rogue producers: Kazakhstan, Iraq and the United Arab Emirates are cheating on their output targets. Yet, I’m unconvinced that's all there's to it. To appreciate Saudi oil policy, it always helps to focus on what the kingdom does, rather than on what it says – whether in public or private. The doing is quite transparent: higher production, which results in lower oil prices. Importantly, Riyadh has made no effort to talk up the market. In fact, the opposite is true. In recent days, the Saudis have quietly sent a message to others in OPEC and beyond: We can live with low oil prices. And reading between the lines, Riyadh seems to be aiming to keep Brent crude below $70 a barrel, and perhaps even lower, a significant departure from its previous so-called Saudi First policy of sustaining prices as close to $100 as possible. Understanding the new approach is critical ahead of the next meeting of the group of eight OPEC+ countries, scheduled for May 5. Bloomberg Opinion #oil #opec

Earlier this year, OPEC+ announced a voluntary oil production cut of 3.66 million barrels per day to support “the stability and balance of oil markets.” Last week, Saudi Arabia and Russia announced an additional cut of 1.3 million barrels per day until the end of the year. #Oil prices have risen steadily throughout the summer, and now cost around $90 per barrel. Oil price hikes feed directly into the American consumer’s wallet as they feel the effects at the pump and their energy bills. As a result, July and August headline #CPI rose on the back of more expensive energy prices, with headline inflation reporting at 3.67% YoY for last month after the energy component rose 5.58% month-over-month. Higher oil prices may continue to keep headline inflation higher throughout the next few months, especially as we enter the colder fall and winter period. While elevated oil prices are seen in the headline CPI print, we do run the risk of higher core inflation down the line as higher energy costs seep into components outside of just food and energy. Overall, we believe this means the Fed will keep rates higher for longer to combat inflation, meaning the number of interest rate cuts priced into the market next year may not come to fruition. Sources: BlackRock, Bloomberg, as of September 13, 2023. CPI sourced from BLS, Oil prices represented by Generic 1st Crude Oil, Brent (C01 Comdty).

🔍 OPEC+ Shifts Strategy: Market Share Over Price? In a surprising move, OPEC+ has announced a major production boost of 548,000 bpd for August, accelerating the rollback of its earlier voluntary cuts. This strategic shift aims to reclaim market share, even if it means accepting lower oil prices. 📉 As a result, Brent crude dipped to ~$67.5/bbl, with analysts expecting further pressure: ☑️ HSBC sees Brent falling to $60/bbl by Q4 2025 ☑️Barclays revised its 2025 forecast to $66/bbl, with $60/bbl in 2026 ☑️Morgan Stanley projects prices to hit the mid-$50s by early 2026 🎯 The move is widely seen as a competitive play—targeting U.S. shale producers and shifting the market away from a high-price environment. This could have lasting implications on investment decisions and energy transition trajectories globally. 📌 Key question: Will this be a short-term squeeze or a long-term structural reset for oil markets? #OPEC #OilMarkets #EnergyTransition #Commodities #BrentCrude #MarketStrategy #LinkedInNews

Why a $100 a Barrel Oil Raises Global Inflation Fears The recent surge in oil prices, with Brent crude inching closer to the $100 per barrel mark, has sent shockwaves through global markets, reigniting fears of inflationary pressures. Since May, Brent crude has witnessed an astonishing 30 percent price increase, prompting traders and economists alike to brace for the possibility of oil reaching this psychologically significant milestone. The rally in oil prices gained further momentum as the extension of OPEC+ supply cuts tightened the global energy markets. Saudi Arabia's Energy Minister, Prince Abdulaziz bin Salman, emphasized the importance of these cuts in stabilizing international energy markets, advocating for light-handed regulation to mitigate volatility. While OPEC+ aims to maintain market stability and enhance energy security without targeting specific price levels, the ongoing surge in oil prices is raising concerns. The options market has seen a surge in activity, particularly in next month's contracts, reflecting a growing bullish sentiment. Many investors are employing hedged call spread strategies to manage risk in the face of this price surge. Economists believe that higher oil prices are here to stay, primarily due to supply constraints from Saudi Arabia and Russia, coupled with resilient demand. Reports from major oil agencies indicate that the market is likely to experience a deficit of over two million barrels per day in the last quarter of 2023, further bolstering oil prices. However, the extension of OPEC+ cuts has intensified concerns about a potential global inflationary spiral. This has raised worries in the equities market, with experts fearing that surging oil prices could trigger another vicious cycle of inflation, which would weaken the global economy. While the outlook for the world's largest economies, the U.S. and China, is improving, it remains uncertain. Any economic slowdown could have a dampening effect on crude oil demand, potentially making the $100 per barrel level unsustainable. There are no substantial fundamental reasons to justify oil prices exceeding $100 per barrel, especially if it is not accompanied by robust global growth. Developing countries like India and China are now vital players in the global economy, and higher oil prices are unlikely to benefit major importing nations like them, potentially leading to increased market volatility. In conclusion, the relentless surge in oil prices toward the $100 per barrel mark is causing widespread concerns about global inflation and its potential negative impact on the world economy. While OPEC+ cuts and strong demand have fueled this rally, the sustainability of such prices remains a subject of intense debate among experts and investors. As the world closely monitors the energy markets, caution prevails as the specter of aggressive volatility looms large.   Brent Prompt Time spread= CO1 - CO2 future #pressurebuiling

Today in Energy: Slowing Chinese Growth Has OPEC Spooked #OPEC, spooked just a bit by #China’s slowing economic growth, cut its forecast for 2024 global crude #oil demand slightly in its latest monthly Oil Market Report. In its August report, the cartel revises that number slightly downward to growth of 2.1 million bpd, saying the “slight revision reflects actual data received for 1Q24 and in some cases 2Q24, as well as softening expectations for China’s oil demand growth in 2024.” OPEC also cut its forecast for 2025 from a previous 1.85 million bpd down to 1.78 million bpd for the same reasons. Not surprisingly, the group sees the vast preponderance of demand growth originating from non-OECD countries. The slightly lowered forecast still leaves OPEC predicting more than 1 million bpd higher growth than the #IEA and #EIA, both of which sees 2024 demand coming in at closer to 1 million bpd. OPEC has to this point based its more robust forecast on the prospects of stronger global economic growth during the second half of 2024. If last week’s sudden pullback in global stock exchanges is a harbinger of slower-than-expected growth to come, we could see OPEC making further downward revisions in the coming months for both 2024 and 2025. If global growth continues coming in slower than anticipated during the second half, it would also complicate life for the OPEC+ alliance of oil producing countries, which includes OPEC members and non-OPEC nations like #Russia and #Mexico. That larger cartel agreed in June to extend its current array of production and export cuts through the end of the year. Additional, voluntary cuts totaling 2.2 million bpd that some of the bigger producers have had in place for most of the last year were also extended, but only through September, with an eye towards gradually releasing them beginning October 1. Obviously, a slowing global economy and crude demand could create a need to reconsider that part of the deal. The OPEC+ cartel’s life is further complicated by the fact that nations not a part of its Declaration of Cooperation continue to increase their own production. As I wrote here on Sunday, the EIA reported last week that the U.S. domestic industry set another all-time production record for the week ended August 4, coming in at 13.4 million bpd despite a falling rig active rig count. In its August report, OPEC says US production has risen by 510,000 bpd year over year through May, while production from Canada (230,000 bpd) and Brazil (110,000) has also added substantial new volumes onto the market. Thus, in order to maintain current production levels and start to eliminate the added voluntary cuts starting in October, OPEC+ will need global demand to remain robust or face the prospects of oil prices falling in an over-supplied market. We do live in interesting times. https://lnkd.in/e86hAy8Y

OPEC+ just shook up the oil market. Starting next month, the group will begin unwinding voluntary production cuts, adding roughly 138,000 barrels per day at first, with a total of 2.2 million barrels per day coming back by 2026. Meanwhile, U.S. tariffs on key trade partners create further uncertainty. The result? Oil prices are slipping—Brent crude is down nearly 15% from January highs, and Goldman Sachs expects it to average just $78 per barrel in 2025. So, what does this mean for U.S. producers? One, global supply is increasing, but OPEC+ remains in control of the pacing. Their ability to manage output month-to-month means volatility isn’t going away. Two, U.S. production—particularly in LNG—is the best counterbalance to this uncertainty, but could be decreasing due to existing inventories and capital budgets. The world needs reliable, transparent, and responsibly produced energy. No one does that better than the United States. However, there is evidence that US, particularly production is leveling off, particularly from the Permian. Several supply growth estimates have already been missed in recent months I'm Ben Holliday, and when I'm not helping oil and gas companies get their deals done, I’m championing the industry that keeps the world moving. Follow me for insights on the geopolitical impact of U.S. energy production, legal trends, and why the U.S. will remain the dominant force in global oil and gas. https://lnkd.in/gKQjefeZ