OPEC postpones plans to increase production — again

Yet again, OPEC has postponed plans to increase oil production until at least the end of the year. That drove oil futures higher on Monday — West Texas Intermediate is trading around $71.50 a barrel. The oil cartel has been reluctant to bring back oil supply for a while now. What gives?

OPEC is in a bit of a damned if you do, damned if you don’t situation when it comes to oil production.

“They’ve got a lot of oil capacity being held back,” said Jim Krane with Rice University. Millions of barrels a day. And even though some OPEC countries are tired of sidelining production, the market’s just not cooperating.

“Oil prices have just been weak, and demand has been weak,” Krane said.

But because OPEC has been holding back so much supply, oil prices are still higher than they would be if that oil hit the market. And that’s encouraged more oil production in countries like “Brazil, Canada, Guyana, so a lot of new non-OPEC production that, you know, they don’t take orders from OPEC secretary general,” Krane said.

All the while, “demand has been very weak in China, weakish in the United States,” said Joe DeLaura with Rabobank.

Next year, he expects more new supply to come online than demand, even without the additional barrels OPEC is holding back.  

“If they start bringing back a lot of that supply, we’re going to be in an extremely oversupplied market, and we could even see, like. $50-a-barrel crude,” he said.

That would not be good for any oil producers, OPEC or not. In the U.S., it could especially cause problems for companies in the Permian Basin, where it’s more expensive to produce oil, said Ed Hirs, an energy economist with the University of Houston.

“If oil drops down to $50 a barrel, they’re going to be having some difficult times, continuing production and meeting their financial obligations,” he said.

On the other hand, if OPEC decides to ramp-up production, that will drive down prices for U.S. consumers.