Oil Prices Could Sink Without Further OPEC+ Action

Hamilton Nwosa
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Oil prices could sink if OPEC+ acts in line with market expectations and agrees to keep production quotas stable for another month, some analysts told Reuters.

The OPEC+ group meets on Sunday—although this meeting was recently determined to be a virtual one. The virtual nature of the meeting has signaled to some that the group would refrain from making big changes to its production plans for January. If OPEC+ does fail to make big changes to its production quotas—that is, if it fails to cut production even more—oil prices could fall.

OPEC+ agreed to drastically cut its production quotas by 2 million bpd last month, which first went into effect in November. The actual cut delivered by the group, however, was expected to be much more modest, somewhere around 1 million bpd, because several OPEC+ members were already producing under the new quota before it even hit.

OPEC+ could take a wait and see approach at this meeting and leave things mostly unchanged, pending a clearer picture of the fallout from the G7 embargo on Russian crude oil and China’s covid outcomes.

According to PVM Oil analyst Stephen Brennock, “a further cut in production cannot…be ruled out. Failure to do so risks sparking another selling frenzy.” Brennock did not specify how low prices could fall in that scenario.

Energy Aspects Amrita Sen also does not see OPEC+ shifting gears just yet, while EBS analyst Giovanni Staunovo said that weaker Chinese demand and the threat of more SPR releases from the United States could prod OPEC+ to cut production further.

Brent crude prices were trading up $1.62 per barrel on Thursday afternoon, to $88.59—a 1.86% rise on the day. NB: Julianne Geiger wrote this article for Oilprice.com

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