Since the formation of OPEC+, oil prices have recently dropped to multi-year lows. This dramatic drop comes on the heels of OPEC+’s announcement to speed up output. OPEC+ controls roughly 40% of the global oil supply. In addition, this decision shines a light on their amazing initiative to increase production in reaction to dynamic market changes.
So far this year, OPEC+ has self-imposed production cuts of roughly 2.2 million bpd. In April, the organization started an earlier than expected phased back-reversal of these cuts, adding back 135,000 bpd of production. That overall positive momentum only expanded further into May as the trend added yet another 411,000 bpd of upward mobility.
Saturday’s meeting, which included OPEC+ members Saudi Arabia, United Arab Emirates, Kuwait, Iraq and Russia, agreed to increase OPEC+ output by 411,000 bpd in September. Combined with the November decision, this produces a cumulative production increase of 957,000 bpd in June. The implementing countries noted that this measure will enable them to respond in haste to previous production deficits. They are excited about the opportunity to build on their compensation practices.
While OPEC+ has already returned substantial amounts of production to the market and this latest OPEC+ initiative has rattled the crude oil market, prices have fallen to levels we haven’t seen in nearly a decade. The organization has come under criticism and scrutiny for its recent behavior. Most notably, it has greatly increased enforcement against members who have repeatedly failed to meet the production quotas they agreed upon. Just last week, OPEC+ deemed Kazakhstan and Iraq as overproducers. This exemplifies the difficulties the coalition has in maintaining its members’ cohesion.
The organization’s long-awaited meeting gets underway on June 1, with all production levels still a possibility as it continues to deliberate. In light of recent developments, OPEC+ emphasized that “the gradual increases may be paused or reversed subject to evolving market conditions.”
OPEC+ today is more demand-focused. Relatedly, market dynamics are rapidly shifting in reaction to powerful global economic signals. Analysts have stated that any recovery in oil prices will largely be dependent on bettering the overall conditions for economic growth. As such, they are inextricably linked to the dictates of international trade policy.
“Now that it’s gone and OPEC+ is going to crank up production, any rebound in prices will be down to an improvement in growth conditions — which in the immediate future is all tied to US trade policy.” – Kyle Rodda
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