The Organization of the Petroleum Exporting Countries — the cartel also known as OPEC — releases its Monthly Oil Market Report on Thursday.
It’s a look at the state of the oil market, with forecasts on where the market is headed. Last month, the cartel decided to cut oil production by about a million barrels per day.
That announcement came as a surprise to a lot of people who follow oil closely, and it helped lift oil prices to new highs for the year. But fast forward to today and oil prices are pretty much back down to where they started in early April.
OPEC and its allies, which together make up OPEC+, were hoping for a pop in oil prices that would last longer than a few weeks, said David Fyfe, chief economist for Argus Media.
“Members must be sort of scratching their head and wondering what exactly they have to do to put in place a sort of solid floor for prices,” he said.
Russia has played a role in keeping oil prices down, Fyfe said. Western allies have tried to limit how much money Russia can get for its oil without taking it out of the market completely, and so “both Russian crude oil exports and refined products exports are very robust.”
That’s a dilemma for OPEC nations, said Clark Williams-Derry of the Institute for Energy Economics and Financial Analysis.
“When oil prices go too low, they start running fiscal deficits, and a lot of these nations really depend on oil revenue to balance their national budgets,” he said.
Oil prices are hovering in the low- to mid-$70-a-barrel range. The International Monetary Fund says Saudi Arabia, for one, needs oil prices up around $80 a barrel to break even.
“But $80-per-barrel oil is actually high enough to create demand destruction,” Williams-Derry said.
That is, consumers will buy less. And in a world transitioning to green energy, there’s no guarantee lost demand for oil will come back, he says.
Demand does seem to be softening because of the global economy, said Pavel Molchanov at Raymond James, a Marketplace underwriter. The world’s major central banks are still trying to deal with persistent inflation.
“All of them have been raising rates,” he said. “That is slowing the economy. When the economy slows, oil demand naturally is affected.”
And oil prices could remain stuck no matter what other surprises OPEC has up its sleeve.
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