Groundhog Day for OPEC | OilPrice.com

Both the API and the EIA agree: U.S. crude inventories fell last week — by millions of barrels. U.S. crude oil inventories fell in line with five-year averages. Globally, demand is also outstripping supply, but as the driving season draws to a close, this could be about to end, leaving OPEC+ in somewhat of a bind.

It’s reminiscent of a decade ago, when OPEC refused to cut output in the hope that falling prices would squeeze higher-cost US shale. OPEC chose not to cede market share to the United States by holding back production and raising prices, giving the US a win. After several years of pressure, Saudi Arabia learned a hard lesson – defending market share allowed US shale to claim more market share. American production increased, eroding Saudi Arabia’s share. OPEC soon called uncle and a production cut was implemented to stabilize oil prices.

OPEC is facing a similar situation today. Future global oil demand is the subject of much debate. OPEC, of ​​course, has the best outlook for global oil demand. Among the biggest forecasters, the IEA sees the lowest demand for next year. If the path of oil prices this week is any indication, the crude markets are clearly of the view that another supply glut is in the offing. OPEC must, at least to some extent, agree to this as well, announcing on Thursday a two-month delay in the planned production increase that was supposed to start in October.

Thus, a delay of 180,000 bpd will return to the market – at least in theory. But we are already seeing signs that Saudi Arabia is having trouble mobilizing the troops when it comes to sticking to the oil production pact. Iraq is in excess. The UAE is reeling from production surges and has struggled hard to rebuild its baseline to allow it to produce more. Iraq has vowed to cut oil exports (not production) further to offset its chronic overproduction. This is noteworthy because oil prices show a clear need for OPEC to continue its production cuts for longer, not to raise oil prices, but to prevent them from falling further. In doing so, however, they are giving US shale a gift – keeping oil prices higher and ceding market share to the US.

The question is, is this the new norm? Has at least Saudi Arabia – if not all of OPEC+ – accepted that it is better to keep prices higher and give up market share? If this is going to be the new norm going forward, with Saudi Arabia content to wait in oblivion if they have to, is the rest of OPEC willing to do the same? If not, Saudi Arabia could find itself ceding market share not just to the United States, but also to other OPEC members such as Iraq and the United Arab Emirates.