Stepping Back from the $100 Dream
After a relentless pursuit by the OPEC+ alliance to reach a $100 per barrel price for oil, it seems this goal has become elusive. In a surprising move, the alliance, led by Saudi Arabia and Russia, agreed to increase production starting in October, leading to a decline in global oil prices.
Production Increase or Price Reduction?
A closer look at the new agreement reveals that OPEC+ will be able to pump more oil into the market, with production increasing by more than 500,000 barrels per day by December and 1.8 million barrels per day by mid-2025.
Despite attempts to portray this increase as a measure to stimulate price increases, the reality suggests otherwise. Production increases typically lead to lower prices, a point that energy expert Javier Blas confirms.
Multiple Impacts
This shift is expected to have an impact on various parties:
Lower Oil Prices: Global oil prices are likely to decline, with prices currently hovering around $80 per barrel, with the possibility of further declines.
Easing Inflation: Lower oil prices could help alleviate global inflation, potentially leading to lower interest rates and better economic growth in emerging markets.
Pressure on OPEC+: OPEC+ will face challenges in maintaining its production quotas, especially with the desire of some countries like Iraq and Kazakhstan to increase their production.
Financial Difficulties for Saudi Arabia: Saudi Arabia may face financial difficulties given its need for a high oil price to balance its budget.
Is It the Right Move?
Javier Blas argues that abandoning the $100 barrel target could be a wise move in the long run, as pumping more oil now could help reduce inflation and stimulate economic growth.
However, Saudi Arabia faces significant challenges due to rising spending and a growing population, which could make it difficult for it to manage its fiscal deficit in the long run.
What Does the Future Hold?
It remains to be seen how oil prices will evolve in light of this new shift by OPEC+.
Will this strategy succeed in balancing the interests of oil-producing countries with the needs of the global economy?
