Their prices are currently experiencing a significant drop oil with Brent still moving slightly above $72 a barrel for November delivery contracts and US crude below $70 for October delivery.
Black gold prices have fallen about 18% since early July highs and more than 24% since late 2023 on concerns over weak demand in China and the US.
However, the market is expecting two announcements in the United States today, which will affect the evolution of prices: first, the announcement in the afternoon about American strategic reserves and shortly after the decision from the Fed for the first rate cut in four years.
U.S. crude oil inventories rose by two million barrels last week, according to the American Petroleum Institute (API). Investors are also expecting the Federal Reserve to announce a cut in key interest rates by 25 or even 50 basis points.
What seems odd, however, is that oil is moving at relatively low levels despite several factors that should normally drive prices up significantly.
Analysts at Capital Economics explain that oil prices fell despite its decision OPEC+ to maintain production cuts. But not even the escalation of tension in the Middle East following the explosions in Lebanon, the war in Ukraine and the loss of around 600,000 barrels per day of Libyan production prevented prices from falling.
The geography of oil is changing
The reason is that crude oil production is now increasing in the Americas – in the US, Canada, Brazil, Guyana, but also in Argentina – covering any OPEC cuts. As the International Energy Agency (IEA) announced, the market will be well supplied with oil this month, because production in the American countries covers global demand. “In this way, the market changes hands: OPEC’s tight control is reduced, as the market becomes more competitive,” energy sources underline.
The latest figures show that OPEC’s market share of total production could fall to 28-30%.
The OECD countries, led by the US, currently hold a similar share to OPEC. However, the cartel still has a certain advantage, as with Russia’s participation in OPEC+ its market share exceeds 35%.
“OPEC+’s market share is, however, at its lowest level since its creation,” as the International Energy Organization explains.
BCA Research even predicts that non-OPEC+ supply will increase by around 3 million barrels per day over the next five years – enough to meet 80% of global demand growth over that period.”
Centrifugal trends
“Lower global demand growth, coupled with OPEC+’s excess production capacity, could even become the cartel’s Achilles heel in maintaining compliance with quotas in the event of cuts, market participants point out. BCA Research explains that “discipline in any cartel is harder to maintain if the promise to meet future demand growth turns into a war for market share.
“Ultimately, OPEC+ will have to cut production further to boost oil prices. But having already cut its output by 11.5%, further cuts would increase disagreements within the cartel as some countries want to produce more to avoid further market share losses,” explain analysts at BCA Research.