Crude Oil Prices May Not Find Lasting Support in OPEC+ Efforts to Lower Prices. This seems odd, but they are exactly the result that we would expect, if they were working on a conspiracy.
The market has been screaming for a long time about the possibility of price manipulation in the oil markets, and there has been some limited evidence to support that claim. Is this evidence enough to justify serious, albeit temporary, intervention in the market by OPEC? If we assume that OPEC is acting on their own and are not supported by the U.S. and other trading nations, then the answer is no.
We can assume that OPEC+ is pushing prices up to attract more customers, which would be the logical thing to do. However, why would OPEC+ want more buyers?
If they are looking out for their own country’s pocketbook, why would they want to hurt their own nation’s economy? It’s simple, the world must be running out of oil.
How do they know that, and why would they risk alienating their own nation by trying to cut prices further? After all, these aren’t the guys who are going to supply the next two or three years’ demand.
You see, the oil producers are all claiming that demand will outstrip supply over the next few years. In order to generate their next windfall, they will either have to hike production, or cut prices.
What are the different tactics they may use? What is the “inside” information that OPEC+ isn’t aware of?
I suspect that it has to do with the fact that the oil producers have invested heavily in “research and development” (R&D) in order to make as much money as possible. The government is covering all the costs of that R&D, and it’s hard to tell that they aren’t doing it.
The other thing you must understand is that the cartel decision is coming, and if they don’t lower prices to match the cartel decision, then their petro dollars are going to be worthless. That means the OPEC+ decision won’t hold, because they can’t really enforce it anyway.
This is a big problem for them, and it’s hard to see how they can sustain such a low price. For the OPEC+ cartel to enforce the cartel decision, they must cut prices so dramatically that it bankrupts them.
They are already losing money and lowering prices further won’t help them, so it makes sense to keep producing oil at least as much as they are, and wait for the prices to rise. This way, they can pay off their oil investments and use those revenues to buy bonds.
It’s an obvious solution, and I’m sure OPEC+ would love to keep the oil prices high and help those banks make more money. But they can’t have that, and they aren’t in a position to pursue that goal, so what they’ll have to do is continue buying assets, and playing the international game like everyone else.