Groundhog Day for OPEC

Both the API and EIA agree: U.S. crude oil inventories shrunk last week – by millions of barrels. U.S. crude oil inventories are down based on five-year averages.

Globally, demand is exceeding supply too, but as driving season comes to a close, that could be about to end, leaving OPEC+ in a bit of a sticky situation.

It’s reminiscent of a decade ago when OPEC refused to cut production in hopes that falling prices would squeeze out higher-cost U.S. shale.

OPEC chose not to cede market share to the United States by withholding production and bolstering prices, handing the U.S. a win. After a couple of years of pressure, Saudi Arabia learned a hard lesson – its defense of market share allowed U.S. shale to claim more market share. U.S. production rose, eroding Saudi Arabia’s share. OPEC soon cried uncle, and a production cut was implemented to stabilize oil prices.

OPEC is faced with a similar situation today. Future global oil demand is the subject of much debate. OPEC, of course, has the rosiest outlook for global oil demand. Of the major forecasters, the IEA sees the least demand for next year. If this week’s oil price route is any indication, crude oil markets are of the clear view that there is another supply overhang looming. OPEC must at least to some extent agree with this too, announcing on Thursday a two-month delay to its planned output hike that was supposed to begin in October.

This will see a delay of 180,000 bpd coming back onto the market.