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In a turnaround from what has been cartel-wide policy in recent years, OPEC+ has over the weekend announced another oil production boost to come in June.
Over the past two years, Saudi Arabia has effectively been at the head of OPEC+ policy to reduce the amount of oil hitting international markets.
To some, this was a clear attempt to drive prices back to US$100/bbl for Brent Crude. This is the level where some analysts predict oil needs to sit in order to let the Saudi Kingdom deliver its often over-excessive infrastructure projects like NEOM and ‘The Line.’
(Projects which are perhaps not too absurd when one considers Mohammed bin Salman Al Saud is still in his thirties.)
But it appears the Kingdom has given up on that goal. Not helping matters is that a number of OPEC+ member nation-states defied the rules at times anyway.
(The key reason the policy never really worked?: the oil production scale-back nearly perfectly aligned with China’s economic doldrums – the Red Dragon just wasn’t buying.)
Now, over the weekend at the latest OPEC+ meeting, the cartel has agreed to further boost oil production in June – and Brent Crude prices have taken a significant hit.
In fact, they’ve fallen below US$60/bbl.
How does this affect the ASX?
This would be all well and good if it wasn’t for the fact traders don’t look to the Brent Crude price as an indicator of future profits for energy producers.
This trend tends to hit the most established companies the hardest, which then trickles down to the mid, small and nano caps.
Companies to keep an eye on could include:
- Woodside Energy (WDS)
- Santos Ltd (STO)
- Beach Energy (BPT)
- Karoon Energy (KAR)
- Viva Energy (VEA)
- Omega Oil & Gas (OMA)
Isn’t this old news?
This isn’t the first flagged OPEC+ production boost, either. Earlier this year in March OPEC+ flagged production boosts, which helped push oil to multi-year lows at that time, too.
And now it’s happened again.
In this most recent iteration, the OPEC+ member nation-states have agreed, in June, to respectively ramp up production by some 410,000 barrels of oil per day – meaning every 2.5 days or so, another million barrels hit the market.
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