Best Of Frenemies

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What's going on?

The world’s largest group of oil-producing nations and their allies don’t always see eye to eye, but look at ‘em now: OPEC+ agreed to extend its production cuts until the end of July.

What does this mean?

OPEC+ agreed to lower oil production back in April after the price of the slippery broth fell to record lows: coronavirus-driven collapsing global demand and a Saudi-Russian price war can do that to a commodity. The agreement was only supposed to last till the end of June, but over the weekend, the group decided to stick with it for another month.

OPEC+ is likely hoping demand for oil will start to rise again as the global economy begins to reopen, and that a still-low supply will result in higher oil prices that’ll benefit all major oil producers. Then again, the effect might not be as pronounced as they’d like: OPEC and its allies haven’t cut as much as they’ve promised they would after similar past agreements, and history repeated itself last month.

Why should I care?

For markets: No-PEC.

Some analysts now think oil’s price could rise to $50 in pretty short order given the extended production cuts. But on Monday, its price – which began the day at around $42 – actually fell by about 3%. Most investors, it seemed, were indifferent about the OPEC+ update – or maybe they just saw oil major BP’s announcement that it would cut 15% of its workers by the end of this year as a damning indictment of where the oil price might go next.

The bigger picture: About that recovery… 

The oil price generally rises and falls alongside global economic growth expectations because if there’s more going on – manufacturing, transport, and the like – more of the obsidian nectar is needed. But its investors are being dragged back and forth at the moment: China’s economy is recovering from coronavirus, sure, but Germany revealed on Monday that April’s drop in industrial production was the worst on record.

Originally posted as part of the Finimize daily email.

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