Oil: Three possible pPaths for OPEC+

Economists at the Bank of Montreal believe that cooler heads will eventually prevail based on the view it would be unwise for OPEC+ to abandon a production cut strategy that has been incredibly successful in reviving crude oil prices over the past year. Nonetheless, oil market participants are likely to remain on pins and needles given that there are a number of feasible scenarios that could unfold. They would categorize the three key ones as follows.

OPEC+ remains focused on managing the level of crude oil prices

“The cartel comes to an agreement before the end of the month that essentially sticks with the framework that members had reportedly agreed to on July 2, which was to lower the current production cut of 5.8 mb/d by 400 kb/d per month until the end of the year. In tandem, the United Arab Emirates (UAE), which had vetoed the initial agreement, is somehow appeased and allowed to marginally increase its production. Such an outcome would likely entail, at least for now, dropping reported plans to extend the current agreement from April to December 2022. This compromise would likely support crude oil prices at current levels.”

“Members maintain the status quo and the current production cut of 5.8 mb/d remains in place until April 2022. This would likely provide a temporary lift to crude oil prices but could eventually result in heavy downward pressure if it appears that there will be no extension of the cartel’s production cut strategy.”

“The oil cartel effectively breaks down or dissolves. Members will no longer comply with mandated quotas and raise production to grab as much market share as soon as possible. This would likely lead to a rapid escalation in global supply and place heavy downside pressure on crude oil prices.”

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.