Brent Drops to $61 Amidst Supply Glut Expectations
Brent price has dropped to $61 per barrel in the global commodity market as markets expect the organisation of Petroleum Exporting Countries and allies members (OPEC+) to increase supply in May, and this move has been projected to create a glut.
Crude oil analysts are bearish on price movement due to demand concerns stemming from the trade war between the world’s two largest oil consumers, the US and China, and growing expectations of a supply glut.
Brent crude fell by around 0.03%, trading at $61.04 per barrel, down from $61.06 at the previous session’s close. US benchmark West Texas Intermediate declined by about 0.26%, settling at $58.36 per barrel, compared to its prior session close of $58.19.
Both benchmarks fell to their lowest level in four years on April 9, after a sharp drop triggered by US President Donald Trump’s April 2 announcement of new tariffs on imports from key trade partners and China’s swift retaliation.
Concerns over weak demand and a potential supply glut have pushed oil prices toward their sharpest monthly decline since November 2021, with Brent and WTI crude both losing more than 16%.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, are expected to increase production in June, stoking fears of a widening supply glut. On May, Saudi Arabia, Russia, Iraq, the United Arab Emirates, Kuwait, Kazakhstan, Algeria, and Oman are scheduled to meet to set their output levels.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+ played a central role in stabilizing the global oil market during a period of unprecedented economic shocks, including the COVID-19 pandemic and the Ukraine War, according to a new study.
OPEC+ helped cut oil price volatility nearly in half compared to projected levels by strategically managing spare production capacity and coordinating with consuming nations.
These efforts, combined with emergency reserve releases by IEA member countries, were key to preventing deeper market dislocation and maintaining a measure of stability in keeping oil markets stable amid global uncertainty.
A study published in the Commodity Insights Digest offers compelling evidence that the OPEC+ played a pivotal role in reducing global oil market volatility from 2017 to 2024, during times of turmoil such as the COVID-19 pandemic and the Ukraine War.
The paper uses a structural economic model to quantify the impact of OPEC+ interventions. Findings indicate that, contrary to public skepticism, OPEC+ actions helped significantly dampen oil price fluctuations that could have been far more severe in the absence of its efforts.
Between January 2017 and September 2024, the price of Brent crude swung wildly from $9 to $133 per barrel. Yet the researchers argue that these swings could have been even more erratic. The model in the study suggests that without OPEC+ intervention, oil price volatility during the pre-pandemic period would have nearly doubled reaching 14.34% compared to the actual 7.24%.
This trend continued during the pandemic and the Ukraine War. From May 2020 to January 2022, price volatility could have hit 17.21% but was capped at 9.26% due to OPEC+ efforts. Similarly, during the Ukraine War from February 2022 to September 2024, OPEC+ actions kept volatility at 7.95% versus a projected 11.90%.
The study also underscores the complementary role of consuming nations. Coordinated releases of strategic petroleum reserves by International Energy Agency (IEA) member countries during 2022–2023 contributed an additional 20% reduction in volatility during the Ukraine War.
These actions were likely factored into OPEC+ planning, further enhancing global market stability. The study adapted a structural model first introduced in 2023 to factor in spare capacity and production data up to September 2024.
Its analysis demonstrates a high correlation between changes in the global ‘Call on OPEC+’, the estimated amount of oil needed to balance the market and actual production, with a 0.90 correlation on a quarterly basis.
Despite larger than usual estimation errors during the pandemic and Ukraine War, which increased by 40%, OPEC+ largely succeeded in responding to unprecedented shocks. The organization appeared to target a stabilization price of roughly $64 per barrel in 2020—about $9 lower than prevailing market estimates.
The findings of the study shows strong endorsement of coordinated intervention in commodity markets during crises. The authors note that the combined efforts of producers OPEC+ and consumers via IEA reserves were essential in avoiding severe market dislocation.
As a result of the study, the authors conclude that OPEC+ effectively managed its spare production capacity to buffer the oil market from significant shocks, and despite increasing estimation errors during turbulent periods, the organization substantially reduced price volatility.
The study, provides a robust framework for evaluating international energy policy and market stabilization in future crises. Interest Rates on Nigerian OMO Bills Rise by 3.28%
Anadolu
