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Charles Kennedy

Charles Kennedy

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OPEC May May Need 5-Year Plan To Prevent Oil Price Collapse

  • Rapidan Group: OPEC+ producers need a long-term plan to manage supply to the market.
  • Oil supply from the U.S., Brazil, and Guyana is rising much faster than initially expected.
  • Paul Sankey: Record-high U.S. oil production is a "huge problem" for OPEC+.

Soaring supply from the United States and other non-OPEC+ oil producers could force the OPEC+ group to continue carefully managing its supply to the market for the next five years to prevent a collapse in oil prices, analysts at Rapidan Energy Group say.  

“For the next several years, at least, continually unified, vigilant, and effective OPEC+ supply management will be required to prevent a collapse in oil prices,” Rapidan said in a report carried by Bloomberg.

Oil supply from the U.S., Brazil, and Guyana is rising much faster than initially expected, according to Rapidan, which was founded by former White House official Bob McNally.

U.S. crude oil production is breaking records these days, putting additional pressure on the OPEC+ group, which looks to keep oil prices above $80 per barrel by controlling “market stability.”

OPEC+ and its leader, Saudi Arabia, face the same old dilemma – how to counter surging U.S. production and prevent it from unraveling the efforts of the alliance to prop up prices. 

Record-high U.S. oil production is a "huge problem" for OPEC+, Paul Sankey at Sankey Research told CNBC after the latest OPEC+ meeting.  

The solution for Saudi Arabia could be to just flush the soaring non-OPEC+ output out by flooding the market with crude and thus sinking oil prices to levels below the U.S. profitability threshold, Sankey said. 

But if OPEC+ wants to keep oil in the $80-$100 range, it will have to continue oil supply management over the next five years, according to Rapidan, which also said in its report that peak oil demand this decade is a “mirage.”

Oil demand not peaking by 2030 will be the next big surprise for the oil market, according to the analysts.

Still, “We assume OPEC+ will successfully manage the market in the run-up to tighter conditions later this decade,” Rapidan said.

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By Charles Kennedy for Oilprice.com

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Leave a comment
  • Carlos Blanco on December 12 2023 said:
    OPEC has limited options. The slowdown of China's economy will only make the options even more limited. The other members of OPEC will soon realize that limiting the revenue from their own resources is not really a wise decision.

    The world should cheer this news as high and unsustainable oil price is just not good for everyone.

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