Oil market rebalancing and the future of ‘OPEC+’

  • The “OPEC+” group has managed to put a floor under oil prices
  • It is still a long way from achieving the price and inventory levels it wants
  • The alliance benefits Saudi Arabia and Russia, its two main architects
  • There is little risk of the group breaking up before the end of next year

Around the world, experts continue to debate the stability of oil markets. Stability, however, means different things to different people. Lately there seem to be two popular definitions.

First, economists talk about balanced, stable markets when supply and demand are in equilibrium or, more generally speaking, when supply and demand grow at the same rate. Economists, of course, would simply assume that the markets could take care of this themselves, without outside help.

More politically minded oil analysts increasingly discuss stability with reference to the alliance between the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers. This alliance, also known as OPEC+, was formed in 2016, to “rebalance” the market in a way that benefits the countries in the group.

Oil prices are moving higher, just as OPEC+ would like, but they are unlikely to reach the coalition’s desired level by the end of 2018. That gives its members a strong incentive to continue cooperating till the end of the year.

Eventually, demand will catch up and there is the risk of a disorderly breakup and a renewed war for market share. However, some form of continuous collaboration is more likely. It could take the form of a “friendly” producers’ association that closely monitors the market.

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