The crude oil market may be pushing OPEC+ into a corner by hammering oil prices lower at a time the exporter group is mulling whether it should start winding back its output cuts from October. There are mixed signals coming from members of the group, which pulls together the Organization of the Petroleum Exporting Countries and allies including Russia.
Some reports have said OPEC+ is now considering delaying its planned production increase of 180,000 barrels per day next month, in contrast to indications late last week that the output hikes would definitely go ahead.
The debate within OPEC+ is to be expected as the group has been consistent in saying it will monitor market developments and respond accordingly. The problem is that the market has not gone the way it was expected, with the forecast strong rise in demand, especially in Asia and led by the world’s biggest importer China, so far failing to materialise.
Instead, crude oil investors have increasingly focused on the weak state of demand in Asia, and the not inconsiderable risks around economic growth in the United States and Europe. So much so that any bullish news, such as the loss of Libyan output, Houthi attacks on tankers in the Red Sea and a sharp drop in OPEC’s August output, has been ignored.
While OPEC+ members likely engage in a behind-the-scenes back and forth on what they should do in October, perhaps the views of banking giant Citi might be playing on their minds. Citi said in a client note on Wednesday that if OPEC+ doesn’t reduce output further, the average price of oil could drop to $60 per barrel in 2025 as demand declines and supply increases from non-OPEC producers. Citi said that while a technical rebound is possible, the market could lose confidence in OPEC+ defending the $70 a barrel level if the group doesn’t commit to extending current output cuts indefinitely.
