(Bloomberg) — OPEC+ agreed to pause its planned oil output hike for two months after prices plunged amid fragile demand and plentiful supply.
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Key coalition members won’t go ahead with the scheduled hike of 180,000 barrels a day in October, according to delegates who asked not to be identified because the discussions are private. Oil prices jumped more than 1%.
The rethink came after downbeat economic data from China and the US — the biggest consumers — sent crude prices below $73 a barrel earlier this week, reaching the lowest since late 2023. This offers consumers some relief after years of rampant inflation, but leaves prices too low for the Saudis and others in the Organization of Petroleum Exporting Countries to cover their government spending.
Led by Saudi Arabia and Russia, OPEC+ agreed in June on a road map for gradually restoring supplies halted since 2022. But it vacillated as soon as the plan was unveiled, repeatedly stressing the increases could be “paused or reversed” if necessary. A major output disruption in Libya had seemed to offer the group space to go ahead, but members are now leaning toward caution.
Postponing the rise might avert the surplus that prominent market-watchers such as the International Energy Agency and trading giant Trafigura Group were expecting in the fourth quarter. Conversely, opening the taps could initiate a slump toward $50 a barrel, Citigroup Inc. had warned.
“OPEC+ faced a binary choice between delaying tapering and enduring a disorderly crude price rout,” said Bob McNally, president of consultant Rapidan Energy Group and a former White House official. “It appears to have chosen the former.”
At the start of this week, OPEC+ delegates were signaling that the scheduled boost remained on track.
Output in member Libya was slashed in half last week after authorities in the eastern region shuttered more than 500,000 barrels a day in a clash with the Tripoli-based government over control of the central bank.
The disruption came on top of the halt of Libya’s biggest oil field, Sharara, earlier in August.
But on Tuesday, Sadiq Al-Kabir — the central bank governor whose attempted ouster precipitated the crisis — said there were “strong” indications political factions are nearing an agreement to overcome the current deadlock.
Brent futures plunged 5% and OPEC+ officials shifted position, saying that discussions on delaying the group’s supply hike were in progress.
While global crude markets are currently tight amid summer driving demand, they’re set to ease significantly once the seasonal peak in consumption passes.
Data from China has shown critical engines of economic growth sputtering, with factory activity contracting for a fourth month and the value of new-home sales declining. US manufacturing activity showed a fifth consecutive month of contraction.
–With assistance from Nayla Razzouk.
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