Wasn't the oil price supposed to head higher this week?
Indeed, that was the widely touted expectation, with the Organization of the Petroleum Exporting Countries and its allies (OPEC+) forecast to extend and even deepen their production cuts at this week's meeting.
While this was not good news if you're filling up your car, it was certainly being welcomed by investors in ASX 200 energy stocks.
But those production cuts have yet to materialise amid a return to infighting amongst some of the cartel's members. That saw Brent crude oil prices tumble almost 5% overnight before recovering some of those losses. Brent is currently trading for US$81.96 per barrel.
We'll look at why OPEC+ is struggling to reach a new agreement below.
But first, here's how the disunity is impacting the Aussie energy market today.
In morning trade, S&P/ASX 200 Index (ASX: XJO) is down 0.55%, dragged down by energy stocks, with the S&P/ASX 200 Energy Index (ASX: XEJ) down 0.7%.
As you'd expect, ASX 200 oil and gas stocks are being particularly pressured. Here's how they're performing today:
- Beach Energy Ltd (ASX: BPT) shares are down 0.5%
- Woodside Energy Group Ltd (ASX: WDS) shares are down 1.2%
- Santos Ltd (ASX: STO) shares are down 1.2%
Now, here's what's happening in the oil markets.
OPEC+ disunity on supporting the oil price
The oil price has trended steadily and sharply lower since 28 September, when a barrel of Brent was fetching US$96.55. That 15.2% retrace in the crude oil has hit ASX 200 energy shares hard, with the ASX 200 Energy Index down 11.3% over this same period.
The oil price has been pressured on one side by high supplies – particularly from the United States, the world's top producer. On the other side, traders are still concerned about sluggish global growth denting energy demand – particularly from China, still struggling to fire up its economy.
OPEC+ is well aware of these dynamics. And the leaders of the 23-nation strong cartel had been hoping to secure deeper supply cuts from its members at this week's meeting.
But that's not what happened.
At least, not yet.
You see, while Saudi Arabia and some of the wealthier members want to extend and perhaps deepen production cuts, that's not sitting well with some of the poorer members, namely Angola and Nigeria.
With no ready deal in the pipeline, OPEC+ has now delayed its planned 26 November meeting until the end of next week, on 30 November.
Jan Stuart, global energy economist at Piper Sandler & Co, explained why that four-day shift saw the oil price slump.
"Moving a meeting like that is simply a big deal. You don't lightly do that," Stuart said (quoted by Bloomberg).
Pierre Andurand, founder of Andurand Capital Management, added that Saudia Arabia was unlikely to carry the burden of extended production cuts on its own.
"The Saudis will probably want the other countries to cut as well. It's going to be a negotiation," Andurand said.
As for what ASX 200 energy investors can expect from the oil price moving forward, I expect OPEC+ will reach an agreement to restrict supplies into the first quarter of 2024.
Either way, we should have the answer around this time next week.
