Background on Key Players and Context
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, have been a significant force in shaping global oil market dynamics since the 2016 agreement to curb production. This collaboration includes major producers like Saudi Arabia, Russia, and other key players such as the United States, Canada, and Mexico. The group aims to stabilize oil prices by coordinating production levels.
Who is OPEC+?
OPEC+, formed in 2016, is an alliance of 23 oil-producing nations. It includes the original 13 members of OPEC (such as Saudi Arabia, Iran, and Iraq) along with non-OPEC countries like Russia. The group has been instrumental in stabilizing oil prices through production cuts since 2016.
Why is OPEC+ relevant?
OPEC+ plays a crucial role in global oil markets, as it accounts for around 50% of the world’s daily crude oil production. The group’s decisions on production levels significantly impact global supply and, consequently, oil prices. As a result, any changes in their policies or production quotas can have substantial repercussions on the global economy.
Oil Prices Drop Amidst OPEC+ Production Discussions
On Thursday, oil prices fell as OPEC+ discussed the possibility of increasing production for July. This news raised concerns that global oil supply might surpass demand growth.
Impact on Oil Prices
Brent crude futures dropped by 0.72% or 47 cents to $64.44 per barrel, while West Texas Intermediate (WTI) crude fell by 0.6% or 37 cents to $61.20 per barrel.
Mexican Export Blend
The Mexican Export Blend closed at $57.72 per barrel on the same day.
OPEC+ Debate on Production Increase
According to Bloomberg News, OPEC+ is considering a significant production increase during their meeting on June 1. An option under discussion is raising output by 411,000 barrels per day (bpd) for July. However, no final agreement has been reached yet.
Expert Opinions
John Kilduff, a partner at Again Capital, stated that “OPEC+ speculation is the main factor today.” He also mentioned that Kazakhstan’s non-compliance last month adds to the concerns.
Harry Tchiliguirian of Onyx Capital Group noted that “the market is reacting to evidence that OPEC is abandoning its price defense strategy in favor of market share.” He likened this shift to “ripping off a band-aid; it happens suddenly.”
EIA Inventory Report and Market Impact
The Energy Information Administration (EIA) reported an increase of 1.3 million barrels in crude oil inventories for the week ending May 16, contrary to analysts’ expectations of a reduction.
Emril Jamil from LSEG Oil Research explained that this surprise build in EIA inventories will put downward pressure on oil prices, particularly WTI. He also suggested that this could encourage more U.S. oil exports to Europe and Asia.
Key Questions and Answers
- What is OPEC+? OPEC+ is an alliance of 23 oil-producing nations, including OPEC members and non-OPEC countries like Russia.
- Why are oil prices dropping? Oil prices are falling due to concerns that OPEC+ might increase production, potentially leading to a supply surplus as global demand growth remains uncertain.
- What is the significance of the EIA inventory report? The unexpected rise in crude oil inventories, as reported by the EIA, has put downward pressure on oil prices and could lead to increased U.S. oil exports.
