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Analysis Energy

Oil price drops due to disagreement within OPEC

May 16, 2024 - By our team of market reporters

The oil price has dropped this week. Initially, the price decreased after hints from the US central bank that the interest rate will not be lowered for the time being. Initially, the decline remained limited because the US commercial oil reserves have decreased after the significant increases of recent weeks. However, on Wednesday, May 15, the oil price took a significant step downwards after the market became aware of a struggle within OPEC over the cartel's targets.

The oil price has slightly dropped this week. On Thursday, May 9, oil was traded at $83.88 per barrel. By Tuesday, May 14, the price had dropped to $81.81.

Overall, the trend in the oil market this week was downward. The main reason for the decline is that the chairman of the US central bank, Jerome Powell, expressed in the US media that he is no longer so certain about the decreasing inflation in the United States. In the first quarter, some prices rose more than expected. Therefore, a short-term interest rate cut is less likely.

Meanwhile, a significant drop in US oil reserves helped keep the decline in check for most of the week. Attention was paid to the stored volumes as inventories had risen significantly in recent weeks. For example, two weeks ago, commercial inventories increased by 9.1 million barrels. Last week, the market offset this buildup, withdrawing 3.1 million barrels from inventories. This is significantly higher than the 1.35 million barrel decline that market analysts foresaw in the latest Reuters survey.

OPEC countries do not adhere to agreement
Additionally, there was considerable pressure on the oil price after it was revealed that the cartel had pumped 568,000 barrels per day more than agreed. The increased production is creating optimism about global supply. Bloomberg also writes that it is questionable whether the cartel's limits will hold. The news agency's website states that there are significant discussions within the cartel about the targets.

At least five of the 22 countries do not agree on the organization's current course. Anonymous sources indicate that the United Arab Emirates, Iraq, Kuwait, and Algeria have expressed a desire to pump more oil. The countries believe that attempts to raise oil prices have not been effective and they can earn more from larger export volumes. This is partly due to the growth of production outside the cartel, especially in the United States. In general, the United Arab Emirates wishes to produce more oil at a lower price, while Saudi Arabia prefers to focus on lower production at a higher price.

The diesel price has also taken a step back. On Friday, May 10, the price of 100 liters of diesel was €128.60. By Wednesday, May 15, the price had dropped to €127.22.

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