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What's going on?
OPEC the group of oil producing nations announced on Monday that its expecting demand for oil to slip, but said the supply cuts it announced last month could keep the market burning bright.
What does this mean?
OPEC raised the hackles of energy-deprived nations everywhere last month when it announced plans to cut oil production by a staggering two million barrels a day. But in fairness, you cant really blame the group for trying to shore up oil’s price when black golds their lifeblood. Flash forward six weeks, and its strategy now seems pretty well-timed: the group just warned that wilting global economies and Chinas industry-crippling zero-Covid commitments look set to seriously drain demand in coming months.
Why should I care?
Zooming out: Oils up for the fight.
Oils up against more than economic slowdowns and Covid-induced slumps, mind you: the industrys also facing long-term adjustments as the world attempts to pivot away from fossil fuels and head toward cleaner, renewable energy sources. OPEC seems ready for both though, with plans to monitor supply against short and long-term slips in demand. That might mean oil prices stay afloat longer than youd think in the months to come, even as global economies sail into troubled waters.
For markets: Old habits die hard.
Big Oils record profits and all-time-high stock prices might mean its party time for the industry right now, but a painful hangover might be brewing. After all, if the world really can wean itself off fossil fuels, then in theory therell be zero demand for oil at some point down the line a fate that no number of supply cuts could remedy. Thats not going to happen overnight, of course, but a slow, painful decline is more than possible: just ask long-suffering investors in firms like British American Tobacco not-so-proudly boasting share prices that havent budged for eight years how it feels when your core product falls out of favor.
Originally posted as part of the Finimize daily email.
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