OPEC nations grapple with oversupply of oil

OPEC nations grapple with oversupply of oil

The world may be heading for an even greater oversupply of oil, and that possibility — which could drive down fuel and energy prices — is hanging over members of the OPEC cartel as they head into negotiations Thursday.

The oil-producing nations will decide whether to stick with production cuts they’ve endured for the past three years, relax them or deepen them in the hopes of propping up prices.

They’re negotiating through a tangle of tensions driving members in competing directions.

Saudi Aramco’s stock market debut, which will get off the ground Thursday when the state-run oil giant prices its shares, has put Saudi Arabia in a precarious position as it bets on what volume of oil production will hit a sweet spot for prices, with the added pressure of considering the interests of its shareholders. The nation is already bearing the burden of the largest share of OPEC’s production cuts.

But some nations such as Iraq have been ignoring the agreement and producing more than their allotted amount.

“If people are already not complying to the current agreement, what’s the point to those that are complying cutting more? So the others can go on cheating?” said Bhushan Bahree, executive director of global oil at research group IHS Markit. “I think the Saudi position is they’re willing to cut more if needed, but they want better compliance.”

Brent crude oil hovered around $61 per barrel Wednesday afternoon. Prices have fluctuated throughout the year, reaching nearly $75 per barrel in April after U.S. sanctions on Iran and Venezuela limited world supply, but lingering trade tensions between the U.S. and China dampened economic expectations, pushing prices back down.

West Texas Intermediate, the U.S. benchmark crude, was trading at around $56 Wednesday afternoon, and its price followed a similar trajectory throughout the year.

As it stands, OPEC nations have agreed to cut production by 1.2 million barrels per day through March 2020, and most analysts expect OPEC nations to extend those production cuts until at least summer.

“If they just keep the existing situation, then you get this massive oversupply,” said Jacques Rousseau, managing director at Clearview Energy Partners.

Rousseau believes OPEC nations will cut production by an additional 400,000 barrels per day to keep supply and demand in balance during the first half of next year, with the cuts made mainly by Kuwait, Saudi Arabia and the United Arab Emirates. But substantial cuts may be difficult to achieve with some OPEC members following their own agendas.

“Iraq has exceeded its production target every month this year,” Rousseau said. “Granted, there’s some unrest going on in the country, but I don’t think they’ll voluntarily reduce.”

Meanwhile, Russia, which is not part of OPEC but has been following its lead on production limits in recent years, has indicated it wants its oil production re-calculated in a way that’s in line with OPEC nations. That could enable it to produce more oil.

And even if members of the cartel cut production, there’s more oil coming online from non-OPEC nations including the U.S., Canada, Brazil, Norway and Guyana, which will more than make up for any drop in production, according to IHS Markit.

The dynamic to watch will be whether Russia and Saudi Arabia will come to an agreement on production levels in the early and middle parts of next year, said Heather Heldman, managing partner at Luminae Group, a geopolitical intelligence firm.

“If something goes awry with Saudi production in the next few months, and there’s a fairly good chance something will happen … Russia’s going to be the first party looking to fill that gap,” Heldman said. “And I think the Saudis know that.”

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Asymptomatic testing will now be available for "priority groups" who are most likely to spread the COVID-19 virus to vulnerable or at-risk populations. File photo by THE CANADIAN PRESS
Marcus Golczyk, with Taco Monster, hands food to a customer during Food Truck Drive and Dash in the Westerner Park parking lot in Red Deer Friday afternoon. The drive-thru event will run every Thursday from 4-7 p.m. and Friday from 11 a.m. to 2 p.m. through June. Photo by SEAN MCINTOSH/Advocate staff
Food Truck Fridays, Food Truck Drive and Dash return in Red Deer

Red Deerians are able to take in a drive-thru food truck experience… Continue reading

Don and Gloria Moore, of Red Deer, are set to celebrate their 70th anniversary later this month. (Contributed photo)
Red Deer couple to celebrate 70th anniversary

Red Deer couple Don and Gloria Moore are set to celebrate their… Continue reading

Chris Scott, owner of The Whistle Stop Cafe, was put in handcuffs after an anti-restriction protest Saturday in the parking lot of the business. (Screenshot via The Whistle Stop Facebook page)
UPDATE: Central Alberta cafe owner arrested after anti-restriction protest

The owner of a central Alberta cafe, which was the site of… Continue reading

Alberta has 1,910 active cases of COVID-19 as of Wednesday. Red Deer is reporting five active cases, with 108 recovered. (File photo)
Red Deer now has 911 active COVID-19 cases

Central zone has 2,917 active cases

FILE - A firefighter wears a mask as he drives his truck. THE CANADIAN PRESS/Jonathan Hayward, File
VIDEO: Flames rip through Edmonton-area seniors complex, but no fatalities

ST. ALBERT, Alta. — Fire has destroyed part of a retirement complex… Continue reading

Quebec Premier Francois Legault chairs a premiers virtual news conference as premiers John Horgan, B.C., Jason Kenney, Alberta, and Scott Moe, Saskatchewan, are seen onscreen, Thursday, March 4, 2021 in Montreal. THE CANADIAN PRESS/Ryan Remiorz
Several provinces bring in new restrictions as high COVID-19 case numbers persist

Several provinces are gearing up to tighten public health measures once again… Continue reading

Members of the RCAF take part in a Royal Canadian Air Force change of command ceremony in Ottawa on Friday, May 4, 2018. The Royal Canadian Air Force is hoping Canada will open its doors to military pilots from other countries as it seeks to address a longstanding shortage of experienced aviators. THE CANADIAN PRESS/ Patrick Doyle
RCAF turns to foreign pilots to help with shortage as commercial aviators stay away

OTTAWA — The Royal Canadian Air Force is hoping Canada will open… Continue reading

An arrivals and departures information screen is seen at the Halifax Stanfield International Airport in Halifax on Thursday, Jan. 4, 2018. The chief executive of Atlantic Canada's largest airport is hoping for COVID-19 testing for arriving passengers "sooner rather than later," as an added measure to combat the province's third wave of the virus. THE CANADIAN PRESS/Andrew Vaughan
Halifax airport CEO hopes for more on-site COVID testing ‘sooner rather than later’

HALIFAX — The chief executive of Atlantic Canada’s largest airport is hoping… Continue reading

Shoppers wear mask as they shop at a nursery & garden shop on Mother's Day weekend during COVID-19 pandemic in Wilmette, Ill., Saturday, May 8, 2021. (AP Photo/Nam Y. Huh)
Tearful reunions mark second Mother’s Day under pandemic

Last Mother’s Day, they celebrated with bacon and eggs over FaceTime. This… Continue reading

Arizona Coyotes head coach Rick Tocchet, standing, watches the game during the second period of an NHL hockey game Wednesday, April 14, 2021, in St. Paul, Minn. The Wild won 5-2. (AP Photo/Craig Lassig)
Tocchet won’t return as coach of Coyotes after 4 seasons

GLENDALE, Ariz. — The Arizona Coyotes and coach Rick Tocchet have mutually… Continue reading

Columbus Blue Jackets head coach John Tortorella shouts at an official after a fight between Columbus Blue Jackets' s Gavin Bayreuther and Florida Panthers' Sam Bennett during the second period of an NHL hockey game, Monday, April 19, 2021, in Sunrise, Fla. (AP Photo/Lynne Sladky)
Tortorella out after 6 years as Columbus Blue Jackets coach

COLUMBUS, Ohio — John Tortorella is out as coach of the Columbus… Continue reading

A caribou grazes on Baffin Island in a 2008 file photo. A last-ditch attempt to save some of Canada's vanishing caribou herds is a step closer after a scientific review panel's approval of a plan to permanently pen some animals and breed them to repopulate other herds. THE CANADIAN PRESS/AP-Kike Calvo via AP Images
Parks Canada captive caribou breeding proposal gets OK from scientific review panel

JASPER, Alta. — A last-ditch attempt to save some of Canada’s vanishing… Continue reading

The smouldering remains of houses in Slave Lake, Alta., are seen in a May 16, 2011, file photo. The wildfire that is devastating large swaths of the northern Alberta city of Fort McMurray comes just five years after another blaze destroyed 400 buildings and left 2,000 people homeless in Slave Lake, Alberta. THE CANADIAN PRESS/Ian Jackson
Ten years later: Five things to know about the Slave Lake wildfire

A wildfire burned about one-third of Slave Lake in northern Alberta in… Continue reading

Most Read