OPEC+ Shenanigans Weakens Its Oil Market Strategy, Confuses Supply Guidance
Ellen Wald, PhD | Jun 04, 2020 19:40
OPEC+’s moving up the date of its June meeting, confusing many market watchers.
As of Thursday morning, the meeting is scheduled for June 10 with an OPEC Conference meeting the day before. OPEC+ is also apparently debating internally whether it will likely extend current production cuts by one month or two months.
Below is a deeper look at how the latest OPEC+ actions are impacting oil markets and a breakdown of key information we currently know about shifts in the organization and production challenges:
Failure To Provide Advance Signaling/h2
OPEC (and now OPEC+) functions best when it sets production quotas in advance for a predetermined length of time—normally between six and 12 months in recent years. This kind of advance signaling helps the governments of OPEC countries plan their budgets. Since most of these governments depend on oil revenue, stability in the market assists budgeting. Advance signaling from OPEC also helps smooth price volatility and enables oil companies that often ship large volumes of oil over long distances to provide customers with pricing and product availability.
Right now, OPEC+ is not providing long-term advance signaling. When OPEC changes its mind regularly or sets new quotas for just a month or two—as it did in April and appears likely to do next week—it sets many unnecessary obstacles for its member country governments and the oil companies operating within their borders.
OPEC+ has been similar , though less concrete, intentions. This doesn’t mean U.S. production is slated to grow in the near future, but it could mean that the rate of decline will slow.
Get The App
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.