Facing the rising risk of a growing global oil glut, OPEC blinked, announcing on Sunday that it would pause a planned increase in oil production next year.
A tailwind for the global economy this year has been the decline in oil and energy costs, which has helped dampen inflation, especially across the European Union and much of Asia.
Lower energy prices will also help spur growth in the United States on the back of tax cuts, rate cuts, the full expensing of capital expenditures and improved lending conditions next year.
The price for West Texas Intermediate, the U.S. benchmark which had dropped below $61 a barrel in recent trading, moved slightly higher on the announcement. Brent crude, the global benchmark, fell below $64 a barrel.
The decline in both benchmarks is a continuation of the now three-year downward trend in crude oil. We attribute those lower prices to lower demand because of technological advances in electric vehicles, greater efficiencies among producers and a moderation of global economic growth.
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While the drop in prices has not yet reached the unanchored decline in crude oil prices that took place in 2015, it has become a concern for OPEC producers.
OPEC’s overproduction that year was blamed for the collapse of oil prices and other commodity prices. So it should not be unexpected that OPEC would reconsider its recent call for increased supply.
