The most important cartel in the oil market is rethinking the strategy announced for this year. OPEC+, the group that includes the members of the Organization of the Petroleum Exporting Countries, and its external partners, such as Russia, had agreed to begin gradually increasing production from October, with the intention of gradually reinjecting 2.2 million barrels per day of production into the market. The cartel’s idea was to begin increasing production at a rate of 180,000 barrels per day from next month, but the collapse in crude oil prices in recent days has led them to rethink their strategy. Pending a formal decision, oil, which fell 5% yesterday, reaching the lowest levels of the year and erasing all the gains it had accumulated in 2024, rebounded more than 1%, to around $74.
The cartel announced its plan months ago, but in early August, seeing the continued declines in crude oil, it acknowledged that it might be forced to reverse its strategy if the situation did not reverse. OPEC+ has been insisting for weeks that it can “delay or reverse” this decision, while keeping an eye on oil prices on the market. It was worried about the drop in crude oil, and now Everything indicates that the plan to increase supply will have to be halted. Or, at the very least, delay.
The declines suffered by oil this Tuesday, with a collapse of 5%, were the straw that broke the camel’s back for OPEC+. Oil has once again left losses in 2024 with the declines of recent weeks, and has already fallen 18% since the highest prices recorded in the year, last April. After learning of the change of course that the cartel plans to make, the price of the European barrel increased by more than 1%, to recover 74 dollars, a level that is not enough to recover the prices of the beginning of the year.
Macroeconomic weakness and increased supply from Libya
In recent days, two factors have put downward pressure on crude oil prices and have finally convinced OPEC+ that increasing supply is not a good idea at this time. China continues to experience economic problems and there are clear signs of economic weakness in the United States, which seems to lead investors to assess the possibility that the slowdown in growth in the world’s largest economy will be more severe than expected.
In China, industrial activity data released Tuesday reflect another month of contraction, now four in a row, while real estate prices continue to fall due to weak demand in the country. In the United States, meanwhile, manufacturing activity has been declining for five consecutive months, a bad figure also released Tuesday.
These two factors now add up to the possibility that Libya will increase its oil supply, after the country’s production was cut by more than 500,000 barrels per day last week, due to an internal political conflict. The news of the Libyan supply cut has been a support for the cartel’s strategy, as it has supported the increase in the price of crude oil, but once the conflict appears to be resolved, the market assumes that this half a million barrels of production will soon return to the market, which is bad news for OPEC+.
The market is now waiting to see what the cartel of producers will finally decide to do, which has seen in recent months how its strategy of reducing supply has reduced its revenues, while allowing competing producers, notably in the United States, Canada, Brazil and Guyana, to recover their production. quota again. The inability of OPEC+ to increase its production again had already been anticipated by some analysts, and the chief economist of the oil company BP himself pointed this out in mid-August. Today, this prediction seems to be about to come true. What seems clear is that the excess supply of crude oil is assured for the coming quarters, a scenario against which some major market players, such as the International Energy Agency, have already warned in recent months.
