Oil Prices Rise Ahead of OPEC Meeting

by Warren Seah

Oil prices are on the rise early Tuesday as the next meeting of the Organization of the Petroleum Exporting Countries (OPEC) approaches later this week.

After slipping for several days following the news of a delayed summit, prices have now slightly rebounded. The U.S. benchmark, West Texas Intermediate, has increased by 0.9% to $75.55 a barrel, while the international standard, Brent crude, has risen by 0.7% to $80.67 a barrel.

The decision to delay the OPEC meeting was reportedly driven by a lack of unity among member countries on restricting oil output. This highlights the competing incentives faced by these countries. On one hand, they all benefit from higher prices, which can be achieved by collectively reducing output. On the other hand, each country wants to sell as many barrels as possible to maximize revenue.

In addition to this internal conflict, signs of a weakening global economy are also impacting oil prices. Deutsche Bank recently stated that it sees a strong possibility of a U.S. recession next year. Furthermore, China, the world’s second-largest economy, is still grappling with a sluggish recovery after lifting Covid-19 lockdowns a year ago.

Despite these challenges, experts believe there is likely to be a floor under oil prices even if OPEC decides against further output restrictions. The United States has announced its intention to start buying oil to refill its strategic reserves at around $70 a barrel, and other buyers may follow suit if prices continue to drop.

While the ongoing OPEC discussions may continue to influence the market, a complete collapse in prices remains highly unlikely.

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