Oil Prices Slide on Rumors of Higher OPEC Production
A possible partial reversal of OPEC production cuts sent crude oil prices sliding early on Monday after Reuters cited six unnamed sources from the cartel as saying members were going to add 180,000 bpd to total production beginning in October.
The possibility for a rollback of the production cuts agreed in 2023 was floated by OPEC earlier this year, with the caveat that market conditions had to be right, meaning oil prices had to be high enough.
Still, the very possibility of higher OPEC output in the context of perceived lukewarm demand growth has been weighing on oil prices for months now, with the weight amplified regularly by algorithmic traders.
“Given lingering demand concerns there had been a growing part of the market, including ourselves, who thought the group would delay any supply increases,” ING’s Warren Patterson and Ewa Manthey said in a note today. “The group may believe that supply disruptions from Libya provide an opportunity to increase supply.”
“There are concerns that OPEC will go ahead and increase output from October,” IG market analyst Tony Sycamore told Reuters, adding “However, I think that outcome is price dependent in that it happens if the WTI price is closer to $80 than $70.”
In other words, OPEC will only start rolling back production cuts when the price is right but reports about the possibility of rollbacks are making sure the price is not right, delaying the rollback, while fundamentals go their own way.
Most of Libya’s crude oil production remains shut in, per the latest updates, with exports suspended, too. The country was producing close to 1.2 million bpd before the large-scale field shutdowns began last month.
On the bearish side, the latest economic updates from China and the United States have reinforced pessimism on the oil market. China’s latest PMI reading turned out lower than expected, while the EIA reported that oil consumption in the U.S.in June had slumped to the lowest seasonal level since the pandemic lockdowns.