OPEC+ Wants to Prop Up Falling Oil Prices

If nothing else, they proved they could barrel ahead as a team. 

Just days after Brent crude oil prices slipped under $74 per barrel, erasing all the gains the benchmark had seen so far this year, the member nations of oil-pumping cartel OPEC+ agreed to delay a production increase for two months. The move, which could or should prop up prices, comes just as unity within OPEC+ begins to crack.

Crude Awakenings

As per usual, oil prices are simply a reflection of broader macroeconomic conditions. With China slogging through a long post-pandemic rebound and many fearing a notable slowdown in the US economy, it’s no wonder oil prices have started to fall. But that’s all priced in — which is why the cartel has been curbing production and supply for over a year now. Or, at least, why it agreed to curb production and supply for over a year now. In a statement Thursday, the group confirmed suspicions that member nations Iraq and Kazakhstan have been pumping more oil this year than the group has agreed to; apparently, not everyone is on board with the higher-prices-for-lower-market share trade-off. 

In fact, OPEC+ has seen its global market share sink to all-time lows, according to an April report from the International Energy Agency, as rivals in the United States, Canada, Brazil, and Guyana take hold. The group had previously planned to kickstart production increases in October to regain market share. But by delaying the increase to Dec. 1, some think the group is merely creating future problems for itself — possibly without even seeing benefits in the present:

• Manish Raj, managing director of Velandera Energy Partners, told MarketWatch Thursday that the cartel’s production delay merely “kicks the can down the road — without addressing the softening of demand.” He added that “it is just a matter of time when OPEC will open the floodgates to regain market share,” though he cautioned that doing so in December would be “just at the wrong time, when demand goes seasonally low.”
• Meanwhile, Helima Croft, head of commodities research at RBC Capital Markets, told the Financial Times that the group may well institute another delay in December. “It’s another ‘to be determined’ … It gives them breathing room.”

The announcement didn’t have much immediate impact. Benchmark US crude prices initially jumped 2% on the news before falling again by the end of the day.

Taking Stock: Meanwhile, over in the US, stockpiles are depleting slightly faster than anticipated. On Thursday, the US Energy Information Administration announced that crude oil inventories fell by around 6.9 million barrels to 418 million barrels in the week ending Aug. 30. Analysts surveyed by The Wall Street Journal had expected a decrease of just 700,000 barrels.