What Does OPEC's Strategy Shift Mean for the Oil Market

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OPEC Notícia

OPEC+,Oil Production,Oil Prices

OPEC changes course, announcing plans to gradually increase oil production in the coming years, signaling a shift in strategy from price control to market share defense.

By John Kemp, senior energy analyst Oil futures prices have fallen to the lowest level for four months and calendar spreads have slumped after OPEC ministers signalled their intention to start increasing production from the fourth quarter of 2024. Front-month Brent futures closed at $78 per barrel on June 3, the first day of trading following the OPEC ministerial meeting held on June 2, up just $2 per barrel compared with the same time last year.

The scheduled production increases mark a change of strategy by OPEC, led by Saudi Arabia, which had previously focused on depleting excess inventories and driving prices towards $100 per barrel. Instead, the group has switched its focus to stabilising, or even regaining, some of the market share it has lost in the last two years to rival producers in the United States, Canada, Brazil and Guyana.

For OPEC to pump more, others must pump less, other things equal, and that requires lower prices to force a production slowdown, especially in the price-sensitive and short-cycle U.S. shale sector. Pre-announcing increases in OPEC production is intended to forestall further increases in output by the U.S. shale sector, partly through signalling and partly through lower prices themselves.

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