Oil price slips on rumors of higher OPEC production

A possible partial reversal of OPEC production cuts sent crude prices lower early on Monday after Reuters cited six unnamed cartel sources as saying members would add 180,000 bpd to total output starting in October.

The possibility of rolling back agreed production cuts in 2023 was mooted by OPEC earlier this year, with the caveat that market conditions must be right, meaning oil prices must be high enough.

Still, the very possibility of higher OPEC production amid a perceived increase in tepid demand has weighed on oil prices for months, with algorithmic traders regularly amplifying the weight.

“Given persistent concerns about demand, an increasingly large part of the market, including ourselves, we believed the group would delay any increase in supply,” ING’s Warren Patterson and Ewa Manthey said in a note from today. “The group may believe supply disruptions from Libya provide an opportunity to increase supply.”

“There are concerns that OPEC will go ahead and increase output from October,” IG market analyst Tony Sycamore told Reuters, adding “However, I think the outcome is price-dependent because it happens if the WTI price is closer $80 rather than $70. “

In other words, OPEC will only start reducing production cuts when the price is right, but reports of the possibility of rollbacks ensure that the price is not right, delaying the rollback while the fundamentals run their course.

Most of Libya’s crude production remains shut down, according to the latest updates, with exports also suspended. The country was producing nearly 1.2 million barrels a day before the widespread shutdowns began last month.

On the bear side, the latest economic updates from China and the United States reinforced pessimism in the oil market. China’s latest PMI came in lower than expected, while the EIA reported that US oil consumption in June fell to its lowest seasonal level since the pandemic lockdown.

By Irina Slav for Oilprice.com

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