The OPEC+ group of major oil-producing countries has postponed its planned production increase until at least April, setting up a potential showdown with President-elect Donald Trump over his plans to boost US drilling.
The decision is the third time since June that OPEC+ has delayed a planned production rise, indicating that the group still sees no way to increase oil output without negatively impacting prices. Despite this, the delay suggests that OPEC and its Russian partner remain more optimistic about demand next year than market forecasters.
However, OPEC’s hesitation is a concern for Trump, as low oil prices would hurt US producers even more than they would benefit them. “This is not an environment that is screaming ‘drill, baby, drill’,” said Jacques Rousseau, managing director at ClearView Energy Partners.
The price of oil is crucial in determining whether the “drill, baby, drill” approach will be successful. Trump’s plan to boost drilling relies on keeping prices elevated to a point where US producers can turn a profit. However, OPEC’s production cuts are putting pressure on the cartel’s influence in the global market.
OPEC’s advantage over US producers has always been its low production costs, but these costs are becoming increasingly painful for the group as weak demand limits the effectiveness of their cuts. Meanwhile, US producers are consolidating and reducing their operating costs, making them harder to compete with OPEC.
If OPEC increases production, US producers would still be vulnerable, especially if prices remain below $90 per barrel, which is barely above the breakeven point for most producers. The only hope for additional US production lies in exports, particularly targeting China or Venezuela and Iran through tariffs or sanctions.
Source: https://www.semafor.com/article/12/06/2024/opec-is-gearing-up-for-a-game-of-chicken-with-donald-trump