OPEC+ says goodbye to its $100-a-barrel oil quest

After relentlessly pursuing $100-a-barrel oil, the OPEC+ cartel has all but thrown in the towel. Whether the U-turn is a tactical retreat, or a strategic shift, is still unclear. But for now its impact would be the same: Oil prices would be somewhat lower and global inflation would ease.

Over the weekend, the group, led by Saudi Arabia and Russia, announced a deal that, on paper, prolongs its complex layers of cumulative production cuts well into 2025. But read the fine print, and the agreement looks different. Under the pact, OPEC+ members will be able to start adding more barrels into the market from October, with significant increases next year.

Based on the path published by Saudi officials, OPEC+ output would be more than 500,000 barrels a day higher by December than now, and about 1.8 million higher by mid-2025. That’s a lot of extra barrels to try to spin the deal as a bullish surprise. By my book, more oil production typically means lower prices, not the opposite.

Granted, OPEC+ said that output increases would be conditional on the health of the market, so the deal is, for now, a statement of intent. But the mere fact the group is telegraphing its eagerness to pump more is telling, and will have an impact on market psychology. So will the fact that the United Arab Emirates has won the right to again pump even more oil than its allies. Other OPEC+ members impatient to produce more — say, Iraq and Kazakhstan — weren’t as lucky, but you can bet they will cheat on their output limits.

Put it all together, and OPEC+ has moved away from the triple-digit into double-digit territory. How much below $100 a barrel? Not a lot, to be sure. Brent crude, the global oil benchmark, is trading just above $80 a barrel, and prices could probably stay around the same level for now, if not a touch lower.