Oil Market Warnings Grow as OPEC+ Decision Nears

Global oil markets continue to flash warning lights as OPEC+ prepares to decide on reviving production.

This week, Goldman Sachs Group Inc. and Morgan Stanley cut forecasts for crude prices amid a faltering demand outlook in China and plentiful production from across the Americas.

Even more ominous for bullish investors is how calmly the market shrugged off the latest threat to supplies. Futures barely reacted as Libya’s eastern authorities halted 40% of the nation’s output during a feud with the Tripoli-based government.

It’s against this fragile backdrop that the OPEC+ cartel led by Saudi Arabia and Russia must choose whether to implement plans to start increasing output in October.

The Organization of Petroleum Exporting Countries and its allies are scheduled to add 543,000 barrels a day during the fourth quarter, the first stage in restoring production halted in late 2022 to shore up prices.

Key members such as the United Arab Emirates appear eager to go ahead, seizing the chance to deploy idle capacity and regain relinquished market share. The Saudis have stressed the hikes can be “paused or reversed” as necessary.

California's Half-Century Offshore Oil Industry Gets A Retirement Plan — Wall Street is beginning to sour on the outlook for crude next year as global supplies increase.Photographer: Tim Rue/Bloomberg

A prolonged shutdown in Libya could ease the path of its OPEC+ comrades in restoring their own production. The timing of Tripoli’s crisis so close to the cartel’s decision may even strike the conspiracy-minded as intriguing.

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The group could opt to add some barrels now and save the “pause” option for 2025, when world oil markets confront an even bleaker price outlook.

But the past week brought a chorus of warnings on the pitfalls the alliance risks if it proceeds.

Global oil inventories will accumulate next quarter if the group increases supply, trading house Trafigura Group said. The producers have only “limited scope” to add barrels, BP Plc chief economist Spencer Dale cautioned.

With Brent crude below $80 a barrel — too low for many OPEC+ nations to cover government spending — Citigroup Inc. and BNP Paribas SA believe the group will postpone the hike.

“Bringing significant supplies back in this market returns OPEC+ to their worst-case scenario: significantly lower prices which aren’t low enough to curtail rival supplies,” BNP commodity strategist Aldo Spanjer said.

—Grant Smith, Bloomberg News