What’s Going On Here?The world’s largest group of oil-producing nations and their allies don’t always see eye to eye, but look at ‘em now: OPEC+ agreed to extend its production cuts until the end of July. What Does This Mean?OPEC+ agreed to lower oil production back in April after the price of the slippery broth fell to record lows: coronavirus-driven collapsing global demand and a Saudi-Russian price war can do that to a commodity. The agreement was only supposed to last till the end of June, but over the weekend, the group decided to stick with it for another month.
OPEC+ is likely hoping demand for oil will start to rise again as the global economy begins to reopen, and that a still-low supply will result in higher oil prices that’ll benefit all major oil producers. Then again, the effect might not be as pronounced as they’d like: OPEC and its allies haven’t cut as much as they've promised they would after similar past agreements, and history repeated itself last month. Why Should I Care?For markets: No-PEC.
Some analysts now think oil’s price could rise to $50 in pretty short order given the extended production cuts. But on Monday, its price – which began the day at around $42 – actually fell by about 3%. Most investors, it seemed, were indifferent about the OPEC+ update – or maybe they just saw oil major BP’s announcement that it would cut 15% of its workers by the end of this year as a damning indictment of where the oil price might go next.
The bigger picture: About that recovery…
The oil price generally rises and falls alongside global economic growth expectations because if there’s more going on – manufacturing, transport, and the like – more of the obsidian nectar is needed. But its investors are being dragged back and forth at the moment: China’s economy is recovering from coronavirus, sure, but Germany revealed on Monday that April’s drop in industrial production was the worst on record. | 