By Timothy S. Snyder, Matador Economics
OPEC+ is giving in to their membership, who have been calling for a return to normal production as they announced a slight increase in crude oil production for April of 138,000 barrels per day. The cartel is citing improved market conditions as their reason, while some in the financial media declare it is a cave-in to pressure from the Trump administration.
As is the stated purpose of this organization, OPEC’s No. 1 job is managing market share, not working to manipulate prices for crude oil. For well over a year, OPEC+ has worked to restrict their member’s production to put a floor under the price of crude oil, but their efforts have faltered, as world prices are down significantly from the high in 2024 of $86.21 on April 10, 2024.
Yesterday’s close for WTI crude oil was $66.31. This action by OPEC will most certainly allow prices to continue falling, and lower the threat of reigniting another round of inflation. Even if the real reason is to give in a little to the Trump administration, consumers around the U.S. will get the benefits that will offset the increase that comes in March and April when we start the switch to the summer blends of gasoline.
Tariffs and oil prices
With the addition of tariffs on Canada, Mexico and extensions to China, one would expect the price of crude oil to go up, because of the added cost of the tariff. The U.S. produces 13.5 million barrels per day of crude oil on its 19 million bpd demand. We import approximately one-third of our daily demand and the biggest share of this comes from Canada.
So, ask yourself why prices are down a bunch over the last week. Tariffs aren’t an “automatic tax” on crude oil. If done right, they are an effective negotiating tool, allowing markets to determine price, not the tariffs.
Jobs miss
Yesterday’s ADP Jobs report showed a pretty serious miss in jobs creation, as the number came in at 77,000 on expectations of 140,000. Tomorrow, we’ll get the Labor Department report on jobs, unemployment wages and more. We are expecting a smaller number, but as usually happens, the BLM will probably give us a surprise.
U.S. winter weather
Another storm is pushing east from the Rockies and will continue to bring Winter weather to the Northern and Central Plains, with more cold and winds to the Southern Plains. Red Flag Warnings are in effect from SE Colorado to New Mexico and West Texas.
Market drivers for today
- OPEC+ will begin adding back 138,000 Bpd on crude oil production
- Crude oil prices continue to fall, even with the new tariffs
- Surprise build in crude oil inventories in the U.S. of 3.6 mm barrels
More energy commentary is available at www.matadoreconomics.com
