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Oil Prices Hover Around $85 Per Barrel, OPEC+ Unlikely to Increase Production

by Krystal

Oil prices, as measured by the global proxy benchmark Brent, are currently stabilizing near the $85 per barrel threshold following a modest rebound. However, this figure is deemed insufficient for OPEC+, a coalition comprising Russia-led oil producers and the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, to consider elevating production levels.

After a rollercoaster ride that saw oil prices spike to $92 before sliding below $80 in April, the current trading month indicates a return to relatively normal fluctuations.

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At 9:18 EDT on Friday (May 10, 2024), the Brent front-month futures contract registered a 0.35% increase, climbing $0.29 to $83.97 per barrel. Meanwhile, West Texas Intermediate stood at $79.36 per barrel, up 0.51% or $0.39.

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Absent unforeseen developments, these price levels are anticipated to persist throughout the month, driven by trading patterns influenced by macroeconomic indicators and supply-demand dynamics. This suggests a trading range of $80 to $90 per barrel, a range deemed acceptable for OPEC+.

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In March, OPEC+ decided to prolong its “voluntary” oil production cuts of 2.2 million barrels per day (bpd) until the end of June, affirming this stance at its latest ministerial meeting on April 3. Given the upcoming meeting scheduled for June 1, expectations for a shift in this strategy are slim.

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While OPEC+ seeks to uphold crude prices at a sufficiently high level, excessive escalation, such as reaching $110 to $125 per barrel, could prove counterproductive in 2024. Such elevated prices could deter global central banks from reducing interest rates, potentially leading to demand suppression—a scenario OPEC+ aims to avoid.

Despite the current firmness in oil prices, attributed partly to significant draws on commercial crude inventories, particularly in the United States, optimism surrounding potential interest rate cuts by the Federal Reserve also contributes to the market sentiment. Positive job data and anticipation of the second release of U.S. first-quarter GDP on May 30 are factors prompting speculation of imminent rate cuts, impacting the dollar and making commodities, notably oil, appealing to traders.

Amidst this stability, OPEC+ is unlikely to express dissatisfaction or enact changes, given the controlled market conditions that afford the group influence over crude oil prices, despite rising non-OPEC production.

Given this landscape of macroeconomic uncertainty, OPEC+ is poised to maintain its current course, with prospects for change at its upcoming meeting in June appearing remote.

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