OPEC+ is in the oil price war – here’s what the cartel wants
According to Bank of America, Saudi Arabia-led OPEC+ producers have launched a “slow grind” oil price war that could last for more than a year. OPEC+ has agreed to surge 411,000 barrels per day for the second consecutive month after years of cutting production. Oil prices fell to lowest levels four years ago this week as supply increases coincided with President Donald Trump’s trade war. “The question is, not OPEC+ is in the midst of a price war, but what is its price war and what its purpose,” Francisco Branch, head of global commodity and derivatives research at Bank of America, told clients in a memo on Wednesday. The strategist said there are three central goals in Saudi Arabia. The long war kingdom for market share wants to curb market share by surge in US shale production, Branch said. They also want to punish OPEC+ members for tricking production cuts. And lower oil prices will ease the impact of Trump’s tariff inflation. “There is little doubt that OPEC+ will need some kind of plan to recover market share after a spectacular increase in US oil production over the past 15 years,” Branch told clients. Goldman Sachs also believes Saudi Arabia will change its Opec+ strategy to focus on stabilizing prices, “It focuses on strategically training US shale supply, supporting internal cohesion and oil demand. The company expects the group to increase its supply of 411,000 barrels in July. OPEC+ has been fighting three price wars over the past 30 years, with Brent prices averageling $45 in the two most recent conflicts of the past decade. Branch said. The latest price war in 2020 lasted just four months as Saudi Arabia tried to force Russia to agree to cut production. However, this time, the oil market is likely facing a long-term battle over prices that could be dragged over for 12-18 months, Branch said. “This latest OPEC+ action will appear as “slow burns” rather than a “fast and ferocious” price war,” Branch said. “We believe that it will likely be long because there are market share components, political components, and group discipline components in the price war.” US Shale has already won low oil prices combined with tariffs and the fear of recession. Already “it’s beginning to affect supply, and US Shale producers are signaling the start of pullbacks in activity,” City analyst told clients Thursday. Diamondback Energy CEO Travis Stice warned shareholders this week that US shale production is likely to peak and begin to decline due to a fall in oil prices. According to data from Enverus, Diamondback is the sixth largest oil producer in the lower 48 states and the third largest oil producer in the prolific basin. It has only been a quarter since 2004, adjusted for inflation, and since 2004, when oil prices in a month were as low as they are now. The operator Diamondback talks with everything agrees that “this oil price won’t work,” the company’s president, Matthew Cause Van Hoff, told analysts about the company’s first quarter revenue call on Tuesday. Bank of America believes Brent Price could reach $58 per barrel in the second quarter, but the company maintains its $62 price forecast for 2025. GoldmanSachs cut their forecasts from $2 to $3 this year. At a price of $50, Van’t Hof said. Oil prices should be on the road from the medium term to $60 and up to $70 for production to increase.
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