background
OPEC+ has announced further cuts in oil production. But the markets are not buying into the oil cartel’s determination to cut production – oil prices are falling significantly.
The recent OPEC+ meeting did not bring the oil cartel members the results they hoped for. Oil prices continued to decline at the end of the week. In the morning, a barrel (159 liters) of North Sea Brent costs $80.68. That’s 18 cents less than the day before. Yesterday the price of crude oil from the North Sea fell even more sharply – by around two dollars per barrel.
After an online meeting yesterday, the OPEC+ oil association agreed on further production cuts: While the oil giants Saudi Arabia and Russia are maintaining their existing restrictions of a total of 1.3 million barrels per day until March, six other members of the association want their daily production quantities an additional reduction of almost 700,000 barrels in the coming quarter.
Doubts about unity and determination the OPEC+
However, funding cuts lead to a shortage of supply and, according to the textbook, clearly lead to rising prices. Not so in this case. But why are oil prices falling despite a shortage in supply? The reason for this is probably that not all 20 OPEC+ countries are participating in the supply reduction. Market observers suspect there is a lack of unity.
There are also doubts about the determination of those OPEC+ members who have promised production cuts to actually implement them. Market expert Robert Rethfeld from Wellenreiter-Invest warns that the markets should treat Russia’s commitments with caution. In fact, the resolution only provides for a voluntary restriction. Angola, the first member state, has already rejected its quota.
“The markets as a whole have doubts about OPEC+’s quota discipline after the crisis-filled virtual meeting yesterday, at which a final press conference was canceled entirely,” emphasizes Jochen Stanzl, chief analyst at broker CMC Markets. OPEC+ is threatened with a further loss of power.
USPetroleum production rises and rises
A look in the rearview mirror shows that the members of OPEC+ apparently do not view the production cuts that have been decided as binding. Agreements made to reduce production volumes were repeatedly undermined by individual member states.
There isn’t much else to suggest rising oil prices at the moment either. US oil production is at an all-time high of 13.2 million barrels per day. Thanks to fracking, the USA can produce more oil than any other country in the world. Experts expect US production to rise even further. It could thereby make up for at least part of the OPEC+ cuts or even overcompensate for them.
Weak demand weighs on oil prices
On the other hand, demand for “black gold” is unlikely to improve significantly. The OECD expects global economic growth to weaken to 2.7 percent in 2024 – it would be the lowest growth since the pandemic year of 2020. This is primarily due to the clouded growth prospects of the world’s two largest economies – and oil consumers -: the United States States and China.
The weak demand situation is likely to do the rest to keep oil prices in check; even an oversupply seems possible. Last but not least, the statistics also suggest that oil prices will be stable or falling: Oil prices usually mark a seasonal low in February.