Is OPEC locked into supply cuts with oil below $75?

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As oil prices hover underneath the $75 for a Brent barrel, OPEC has likely found itself stuck with the extra supply cuts it took on—mainly Saudi Arabia—a hedge fund manager told Bloomberg on June 30.

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“It would be too damaging to prices to remove it at this time, given the fragility of sentiment,” hedge fund manager of Black Gold Investors LLC said.

Earlier this month, Saudi Arabia voluntarily agreed to downsize its production targets by another 1 million barrels per day for the month of July—although it could be extended. Oil prices reacted by jumping up, but the effects were not long-lasting. Today, crude oil prices are lower than they were prior to the announced cut, putting OPEC in a tricky position.

In the runup to the OPEC meeting, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman warned traders once again against taking a speculative bet against oil. He made similar threats back in 2020. “I’m going to make sure whoever gambles on this market will be ouching like hell,” he said at the time.

Indeed, OPEC’s cuts they announced back in April hurt short sellers when prices rallied. This time, however, the warning ahead of time likely muted the response to Saudi Arabia’s generous production cut.

OPEC—most importantly Saudi Arabia—is working against disappointing economic data out of China.

Brent prices are just a hair under $75 per barrel today, but recent estimations from the International Monetary Fund suggest that Saudi Arabia’s fiscal breakeven for crude oil is more than $80 per barrel.

Saudi Arabia’s extra cuts go into effect in July, and prices could pick up as supply tightens. After all, the IEA has predicted that crude oil supply will exceed demand by 2 million bpd in the second half of this year.