Background on Key Players and Context
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, agreed on Sunday to raise oil production by 547,000 barrels per day (bpd) for September. This decision is part of a series of accelerated production increases aimed at capturing market share, reversing approximately 2.4% of the world’s demand.
OPEC+ had previously implemented significant production cuts totaling around 2.5 million bpd, which were intended to stabilize oil prices amid reduced global demand due to the COVID-19 pandemic. As economies recover, OPEC+ has been gradually easing these restrictions.
Impact on Oil Prices
At 5:27 a.m. CDMX time, oil futures for Brent crude fell by $1.17, or 1.7%, to $68.5 per barrel, while West Texas Intermediate in the United States dropped by $1.26, or 1.9%, to $66.07 per barrel. Both contracts lost nearly $2 on Friday.
Analysts like Tamas Varga from PVM Oil Brokers noted that the OPEC+ decision is putting downward pressure on oil prices. Furthermore, there’s speculation about the potential cancellation of another 1.65 million bpd in cuts, which could further impact prices.
Goldman Sachs analysts predict that the actual increase in oil supply from the eight OPEC+ countries that have raised production since March will be 1.7 million bpd, as other members have reduced output after overshooting their quotas.
Geopolitical Concerns and Trade Tensions
Investors are also assessing the effects of recent U.S. tariffs on exports from numerous trading partners and remain wary of potential new U.S. sanctions against Russia.
“In the medium term, oil prices will be shaped by a mix of tariffs and geopolitics. Any price spike caused by energy sanctions is expected to be short-lived,” said Varga.
Key Questions and Answers
- What is OPEC+ and why is their decision important? OPEC+, comprising the Organization of Petroleum Exporting Countries (OPEC) and its allies, has been adjusting oil production levels to stabilize global oil markets. Their recent decision to increase production by 547,000 bpd for September is significant as it represents a reversal of previous production cuts implemented during the COVID-19 pandemic.
- How does this production increase affect oil prices? Analysts like Tamas Varga from PVM Oil Brokers suggest that the OPEC+ decision is putting downward pressure on oil prices. Additionally, speculation about further cut cancellations could exacerbate the price decline.
- What are investors concerned about? Investors are evaluating the impact of recent U.S. tariffs on exports from various trading partners and remain cautious about the possibility of new U.S. sanctions against Russia.
- What do analysts predict about the actual supply increase? Goldman Sachs analysts forecast that the real supply increase from OPEC+ countries that have raised production since March will be 1.7 million bpd, considering other members’ reduced output after exceeding their quotas.
