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OPEC and Saudi Arabia’s attempt to recover the oil market appears to be faltering, as evidenced by the longest drop in crude costs in years.
Oil rose on Friday, but costs have plunged over the past seven weeks, marking the longest drop in oil costs seen in five years, according to Reuters. Brent crude, the foreign benchmark, rose 2% on Friday to $75 a barrel. 18% from mid-October levels, when Brent was trading around $92 a barrel.
West Texas Intermediate crude rose 2% on Friday to $70 a barrel, down about 19% from mid-October, when it was trading around $89 a barrel.
The slump, which has lasted just two months, is a blow to OPEC and its de facto leader, Saudi Arabia, which has been trying to stem falling oil costs over the coming year. OPEC members cut production several times in 2023 and agreed to a cut of 2. 2 million barrels per day through the first quarter of 2024.
Some 1. 3 million barrels of these cuts have already been decreed by Saudi Arabia and Russia, which have voluntarily opted to increase their oil production until the end of the year.
These cuts could be followed by additional production cuts if necessary, the Saudi energy minister said. Earlier, he said the cartel seeks to mitigate distortions in the energy market and warned that falling oil costs are a “strategy” orchestrated by speculators.
However, Saudi Arabia’s threats to restrict global supply appear to have been ignored by oil market participants, who have reversed those cuts as supply in the market from the United States increases. Oil production has soared this year, with U. S. crude exports reaching a record high of 6 million barrels per day.
Markets also expect lower demand for oil in the future, especially as global economies slow and governments put more emphasis on expanding the use of renewable energy.
U. S. production activity fell in November, marking its 13th consecutive month of decline, according to the Institute for Supply Management. China, one of the world’s biggest consumers of crude, is also grappling with a series of economic turmoil that could continue to keep levels low. .
Those pressures could eventually push Saudi Arabia to wage oil “market share war” against the US, energy expert Paul Sankey told Business Insider, a tactical move that involves flooding the world’s oil supply through the first half of 2024 to regain control of prices.