OPEC+ Ouching Toward Bethlehem: Blog May 28, 2023

William Butler Yeats described the despair that accompanies the unravelling of well-intentioned efforts into something far worse than what had existed beforehand. In his 1919 poem The Second Coming, he wrote,

“Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world…
And what rough beast, its hour come round at last,
Slouches towards Bethlehem to be born?”

It’s debatable whether efforts to manage world oil markets by OPEC+ since 2016 were well-intentioned but they are clearly now unravelling.

Oil minister Abulaziz bin Salman reprised the Saudi default narrative of blaming oil “speculators” for market manipulation when things don’t go according to plan for oil price.

“I keep advising them that they will be ouching — they did ouch in April.”

It’s both funny and ironic because the mission of OPEC and OPEC+ is to manipulate the oil market, and Saudi Arabia is the world’s largest speculator in oil futures.

I enjoyed this comment from Again Capital’s John Kilduff a few days ago:

“It’s now OPEC+ producers experiencing the ‘ouch’.”

He was talking about the possibility that OPEC+ may need to cut supply yet again at its upcoming Joint Ministerial Meeting. That, anyway, is what Russian President Vladimir Putin indicated about ten days ago.

I am not among those who believe that OPEC has outlived its usefulness nor do I agree with those analysts who think that it is now “back in the driver’s seat.” These are equally silly opinions.

It is pointless to look backward and describe all of the tipping points between 2016 and the present. But once OPEC+ started trying to manage oil markets six-and-a-half years ago, it couldn’t stop.

What started as a relatively straight-forward effort to put a floor under oil prices has acquired a life of its own. It’s gotten caught up in the geopolitics of the war in Ukraine and a new world order. It will follow the well-established path of entropy. In other words, the best scenario for OPEC+ is that things don’t get worse in the near-term because in the longer term, they will.

It is presumptuous to think that the world’s largest commodity market can be managed. It’s impossible.

“And what rough OPEC+, its hour come round at last,
Ouches towards Bethlehem to be born?”