What goes into OPEC’s decision-making?
OPEC+ members are meeting Sunday, just as the summer driving season is getting underway. The group will be deciding what limits to set on the amount of crude oil that member countries can pump out of the ground.
OPEC’s decision-making is all about supply and demand. And the cartel wants to manipulate production to push up prices and demand.
“Price is always in the background as part of the discussion,” said Mark Finley, a fellow at Rice University’s Baker Institute. He said the OPEC+ members will decide whether to continue voluntarily cutting production by about 2 million barrels per day.
“They have influence but not control over the price,” Finley said.
It is a fluid situation. For example, OPEC+ has to keep an eye on whether its members are producing more oil than they’re supposed to.
“It is going to be like herding cats to get all the different members that have additional crude oil — it’s going to be difficult to make sure they maintain the discipline,” said Tom Kloza, who is global head of energy analysis for Opis.
OPEC+ also has to think about the non-OPEC countries, like the United States and Canada, that pump out oil. Then there are the wildcards, said Andrew Lipow, president of the consulting firm Lipow Oil Associates, like whether hurricanes will hit the U.S. Gulf of Mexico, “where production is just shy of 2 million barrels a day,” Lipow said.
OPEC+ also has to monitor interest rates, because rates that are higher for longer can put a damper on global growth. A sputtering economic engine doesn’t need a lot of oil. Then, Lipow said, there’s China.
“As the Chinese economy slows, so will the demand for increasing amounts of crude oil,” he said.
Still, Lipow said, OPEC’s supply and demand forecasts are usually rosier than the markets’. If they were more gloomy, that might spook traders and cause oil prices to fall. And OPEC certainly doesn’t want that.
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