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OPEC+ Can Trade Short-Term Pain for Long-Term Gain

OIL

OPEC+ countries will need to decide whether to extend their voluntary output cuts into Q2, with the market widely expecting cuts to be rolled over, according to Bloomberg.

  • However, OPEC could instead add some extra supply, taking short-term pain for long-term gain, according to Bloomberg’s Javier Blas.
  • It is thought that the consensus in OPEC favours extending the cuts, particularly as Christmas and Lunar New Year will cloud the data for Jan and Feb.
  • A minority view favours an easing of cuts in Q2. With Brent near $85/b, the physical market is healthy, along with refinery margins.
  • Meanwhile, Indian and Chinese demand appear robust. This could prevent a price shock were cuts lifted.
  • The longer OPEC+ waits to unwind its production cuts, the more it subsidizes America’s shale output, Blas said.
  • By limiting growth in oil prices, OPEC can cap US shale production growth, which is in its long-term interests.
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