Posthaste: Biggest risk to oil prices might not be what everybody thinks

financialpost.com:

Oil prices took a frightening turn this month, in what one commodities analyst described as “a complete bloodbath.”

The descent that saw prices for Brent crude drop below US$70 for the first time in three years was driven mainly by concerns about demand after the world’s top two oil consumers, China and the United States, showed signs of slowing.

Today the International Energy Agency warned that oil consumption had dropped to the slowest rate since demand crashed during the early days of the pandemic.

Investors are right to worry about demand, says Capital Economics, but there is a bigger question mark hanging over the oil market right now — supply.

OPEC+ announced last week that it would delay the unwinding of production cuts until December in an effort to bolster falling prices.

But there is a chance that these oil-producing nations could change tack and start ramping up production, said David Oxley, Capital’s chief climate and commodities economist — and that’s a key downside risk to oil prices.

Since late 2022, Saudi Arabia has led OPEC+ in cutting oil output, with its production falling from 11 million barrels per day to 8.9 million.

Crown prince Mohammed bin Salman‘s approach since he took tighter control of oil policy has been to limit supply to drive up prices, but it wasn’t always so.

Up until 2016, Saudi’s oil policy led by then oil minister Ali Al-Naimi focused on retaining market share. When oil prices started to fall in mid-2014, OPEC ramped up production to keep prices low and squeeze out higher-cost producers, mainly in U.S. shale oil which was booming.

The result was one of the largest oil crashes in modern history. The 70 per cent drop in prices between 2014 and early 2016 ranked among the three biggest