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The Organization of the Petroleum Exporting Countries (OPEC)


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OPEC Shoots Itself In The Foot

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OPEC’s non-action leaves the world wondering and production policy in question - Three reasons the oil price may still head a lot higher

OPEC cannot get its act together. With no agreement on production policy for the coming months, the cartel members appear to be on their own. While discussions will continue, the gulf between the UAE and other members, including Russia, could be too wide to bridge. The cartel’s future could hang in the balance of a compromise at a time when the United States handed the group the pricing power in the petroleum market on a silver platter.

Crude oil’s price action in the wake of OPEC’s discord is impressive. At least three factors could send the price a lot higher over the coming months and years:

  • The Fed may continue to call inflationary “transitory,” “temporary,” or anything else other than what it is, the legacy of a tidal wave of central bank liquidity and a tsunami of government stimulus. Inflation is bullish for all commodities, and crude oil is no exception.
  • The conflict between the UAE and other OPEC members and Russia is a microcosm of the turbulent state of the Middle East. The region is home to over half the world’s petroleum reserves. With US output declining because of the greener path for US energy policy, any events that disrupt supplies, refining, or logistical routes in the area could dramatically impact oil’s price. Crude oil has become a lot more sensitive to events in the Middle East with the Biden administration in the Oval Office.
  • NYMEX crude oil futures moved marginally above the October 2018 to the highest price since 2014. The price remains a stone’s throw away from the highs, which could be a gateway to triple-digit oil prices.

OPEC tried to shoot itself in the foot at the latest biannual meeting, but US energy policy pushed the foot out of the line of fire. OPEC looks likely to squeeze US consumers with higher prices despite the cartel’s incompetence.

Meanwhile, on July 14, news that OPEC+ reached a provisional agreement to taper the production cuts by 400,000 bpd with a compromise that allows the UAE to increase output from 3.2 mbpd to 3.65 mbpd starting in April 2022 weighed on the oil futures market. While crude oil is overdue for a downside correction, the strength of demand is likely to lead to a higher low. US producers have been increasing output, but the shift in US energy policy likely created a supply ceiling as fossil fuel production runs contrary to the Biden administration’s green path.

 

By Andy Hecht, 16th July 2021. Investing.com

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  • 2 months later...
All day - OPEC meeting: expected to add another 400,000 bpd to output for November despite $80 crude. 
Markets to watch: USD crosses.
OPEC+ considers options for releasing more oil to the market -sources |  Reuters
 
OPEC and its allies are expected to retain their agreement to produce an
additional 400,000 barrels of oil per day in November, Reuters reported
Monday, citing three OPEC+ sources.
 
Ahead of OPEC's scheduled meeting, WTI crude oil futures edged up 0.3% to
$75.90 per barrel early Monday, while Brent crude rose 0.14% to $79.39 per
barrel.
 
In July, OPEC+ agreed to raise output by 400,000 b/d every month until at
least April 2022 to phase out 5.8 million b/d of its production cuts. "The
most reasonable is to add 400,000 bpd, no more," Reuters cited one of the
sources as saying.
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