Oil Continues to Slide on OPEC+ Concerns

Is there trouble brewing in Petroland? 

BREAKING NEWS

Crude oil continued a deep slide today, falling below $75/ barrel as the market tries to digest OPEC+ unexpectedly delaying their semiannual meeting. Reports suggest that member states are pushing for better deals. What is going on? 

WHAT HAPPENED

Not only is the OPEC meeting being delayed from last weekend to this Thursday, but now the summit will be done over the internet instead of a face-to-face meeting. The delay here could mean that other nations are dragging their feet regarding their own potential production cuts. While that doesn’t seem like a big deal, we need to look to history to see what could happen next. In short, oil prices basically got cut in half from July 2014 to January 2015, with most of the collapse there happening after November 2014 when OPEC was basically forced to keep production at high levels despite rising supply. Demand is falling enough and countries like Brazil are ramping production enough that a similar situation can play out, causing a bunch of degenerates to short oil futures. If OPEC+ can’t come to an agreement about who will join in production cuts, this situation can get really interesting.

SQUEAKY WHEEL 

While OPEC nations are being tight-lipped about the delay here, reports from Reuters suggest that the friction here is largely coming from Nigeria and Angola. Both countries are trying to negotiate bigger output allowances from OPEC after their production allowances were cut back in June. They got hit with those cuts for not hitting their quotas, which is common for smaller-output countries. 

WHY IT MATTERS

Oil prices were the primary driver for inflation in 2022 and one of the main reasons inflation has been going away as fast as it arrived in the first place. Low energy prices will help drive the CPI down and add to the current bull narrative. More importantly, if OPEC+ can’t come to a new agreement on. November 30th, this could have an even bigger negative impact on oil prices. Investors looked at all this news and dropped the price of WTI crude below $75/ barrel early today, but the price has recovered a fair bit since then.