Crude oil prices experienced a notable decline early Monday following of a potential partial reversal of OPEC‘s production cuts. Six unnamed sources within the cartel indicated that OPEC members are considering boosting output by 180,000 barrels per day (bpd) starting in October.
This potential adjustment in production cuts, which were initially set in 2023, was mentioned by OPEC earlier this year under the condition that market conditions would need to be favorable, specifically requiring oil prices to be sufficiently high. The mere possibility of increased output amid subdued demand growth has been exerting downward pressure on oil prices for several months, a trend exacerbated by algorithmic trading.
Warren Patterson and Ewa Manthey of ING noted in a recent report, “Given ongoing concerns about demand, there was an expectation in the market, including from ourselves, that the group might postpone any increase in supply. However, the disruption in Libyan supply might present an opportunity for OPEC to raise output.”
IG market analyst Tony Sycamore commented , “There are growing concerns that OPEC may proceed with the output increase from October. However, this is contingent on oil prices, likely occurring only if WTI prices are closer to $80 per barrel rather than $70.”
This suggests that while OPEC is contemplating rolling back production cuts, the anticipation of such moves is currently contributing to price volatility, delaying the actual implementation. Meanwhile, Libya’s oil production remains largely offline, with exports halted. The country had been producing approximately 1.2 million bpd before recent large-scale field shutdowns.
Compounding the market’s bearish sentiment, recent economic data from China and the United States has intensified pessimism. China’s latest PMI reading fell short of expectations, and the U.S. Energy Information Administration (EIA) reported a significant drop in oil consumption in June, reaching the lowest seasonal level since the pandemic lockdowns.
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