Oil prices have been edging higher this week, but there’s not much OPEC+ can do to lift prices beyond this point, one energy expert said.
That’s because the US has been producing boatloads of oil, notching record levels of production and crude oil exports.
“OPEC+ just can’t cut enough to sustain a price much above where we are right now,” John Kilduff from Again Capital told CNBC on Tuesday.
West Texas Intermediate crude oil is trading at $75.94 a barrel, up from levels of around $73 last week. Prices have ticked up as tensions in the Red Sea have been rising. Brent crude, the international benchmark, spiked to $81 a barrel on Tuesday, up from $79 the week before.
But oil prices are still far below September highs of $94 a barrel for WTI crude. Those sinking prices have come as the US has pumped a record amount of oil, flooding markets with a glut of supply — and it’s gone directly against OPEC’s attempts to boost prices by slashing production.
More broadly for oil markets next year, Kilduff sees crumbling demand in the face of a slowing global economy.
“For the most part, there’s headwinds here in terms of the economic outlook,” he said. “The reason global central banks are cutting rates is not just because the inflation situation has potentially been tamed but because the economic outlook is softening, and that’s going to speak right into crude oil demand, energy demand, for next year.”
The US central bank has also been eyeing rate cuts next year as key economic data like inflation has hinted at signs of a cooling economy. But rate cuts might not be all that positive a sign, and are more like a double-edged sword. According to Kilduff, it could crush demand for oil.
Meanwhile, the turmoil in the Middle East seems less threatening to oil, Kilduff added, noting that recent attacks by Houthi rebels on key shipping routes wouldn’t be a big deal and that markets didn’t budge much after other political events like missile attacks by Houthis in 2019, or the US drone strike in 2020 that assassinated Iranian major general Qasem Soleimani.
“We will have these pinprick events, there may be some boost in oil price like we are seeing today,” he said. “Plus, it’s a thinly traded market so they’re getting that advantage. But in terms of this thing escalating, at some point in time, the Iranians will cross a line that will get them put back in their box, or their agents.”
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