OPEC+ pauses oil output hike amid price slump
The OPEC+ alliance has decided to temporarily halt its planned increase in oil production for two months. The decision comes in response to a significant drop in oil prices, driven by weak demand and abundant supply.
Key members of the coalition will not proceed with the scheduled increase of 180,000 barrels per day in October. This decision follows a decline in oil prices below $73 a barrel, the lowest level since late 2023, due to weak economic data from China and the United States. While this provides some relief for consumers, it leaves prices too low for OPEC+ members to cover their government spending.
Led by Saudi Arabia and Russia, OPEC+ agreed in June to gradually increase oil production. However, they have hesitated to fully implement this plan, emphasizing the possibility of pausing or reversing the increases if necessary. Recent disruptions in Libyan oil production had created an opportunity for the group to proceed, but they have ultimately chosen a more cautious approach.
Postponing the oil output hike could help prevent a surplus in the fourth quarter, a scenario predicted by analysts like the International Energy Agency and Trafigura Group. Conversely, increasing production could lead to a sharp decline in prices, potentially falling to $50 a barrel, according to Citigroup.
“OPEC+ faced a binary choice between delaying tapering and enduring a disorderly crude price rout,” Bob McNally, president of consultant Rapidan Energy Group and a former White House official, said. “It appears to have chosen the former.”
At the beginning of the week, OPEC+ delegates were still signaling their intention to proceed with the planned production increase. However, disruptions in Libyan oil production due to political conflicts shifted their stance.
The global crude market is currently tight due to increased summer demand, but this situation is expected to ease as consumption peaks. Weak economic data from China and the United States further contribute to the decline in oil prices.
Attribution: Bloomberg
