Oil prices decline following OPEC+ increasing production output.
Title: OPEC+ Ramps Up Oil Production, Sending Prices Plunging in 2023
The oil market took a nose dive on Monday, with prices dropping significantly following OPEC+'s decision to boost production for the second month in a row, causing concerns of a looming global supply glut.
Brent crude, the international benchmark, plummeted more than 4% to below $59, touching four-year lows set last week. West Texas Intermediate, the U.S. benchmark, dropped to near $56.
The move was prompted by fellow OPEC members, including Saudi Arabia and Russia, agreeing to increase supply by a whopping 411,000 barrels a day in June, despite concerns of oversupply and economic weakness brought about by tensions in global trade.
OPEC caught the market off guard last month with a similar-sized production increase, nearly three times more than anticipated. As a result, Brent crude tumbled by nearly a fifth in April, marking the largest monthly drop in almost three and a half years.
According to energy consultant Rystad, the hike in production from OPEC+ represents a clear shift in strategy, moving away from production cuts that had maintained oil prices above $90 per barrel for much of 2022.
For the past three years, OPEC+ had slashed collective output by nearly 6 million barrels a day in the effort to prop up prices, but this strategy has started to wear thin amid sluggish demand, rising U.S. output, and inconsistent adherence to production quotas among members.
Tensions within the cartel have grown, particularly with Kazakhstan, which has been expanding output at the Chevron-led Tengiz field and has stated its intention to prioritize national interests over quota agreements.
As a response, Saudi Arabia has begun to unwind production limitations, advocating for the increase in May. The Kingdom, which had cut its own production by 2 million barrels a day over the past three years, has been frustrated by shouldering most of the production reductions while other members like Kazakhstan and Iraq frequently exceed their quotas.
Saudi officials have indicated they are comfortable with bringing back supply, even if it means enduring an extended period of lower prices. The reasoning behind this decision remains unclear, but it is likely to keep prices down for the remainder of 2023.
Some analysts expressed doubts about how much oil would actually hit the market, considering that OPEC+ production in April fell by 200,000 barrels a day due to Venezuelan sanctions. If past offenders, such as Kazakhstan, Iraq, and the UAE, rein in their output, the planned increases may fall short of expectations.
The increase in oil production by OPEC+, led by Saudi Arabia and Russia, is expected to have a significant impact on the global oil market, potentially leading to an oversupply and a continued downtrend in prices, affecting the finance and energy sectors. This shift in strategy by OPEC+, moving away from production cuts that had maintained oil prices above $90 per barrel for much of 2022, might also affect the economy, particularly in the oil-and-gas industry.
