OPEC is getting the game right this time around, agreeing to increase production by 500,000 barrels per day at its recent meeting.
That's according to Barani Krishnan, a senior writer, editor and content and communications strategist at Investing.com.
"It's all-too-familiar territory for OPEC, eager to raise production on a $10 hike only to let the market crash $20 later," he wrote. "That's why they're extremely cautious this time around. This half-million barrel adjustment appears to be a well-calculated hedge, which they can pull back at any time."
OPEC's moderate increase in oil supply comes at a time when the U.S. rig count stands at 323, down 476 rigs from a year earlier.
That means less oil is flowing from American producers to the market as the world economy strives to recover from the Covid-19 pandemic.
And that has helped the price of crude oil stabilize in the $40 to $45 range recently.
What's behind this change in OPEC strategy? Krishnan thinks the pandemic has made the organization more "nimble" in dealing with swings in oil market conditions. "It can pull together a Zoom meeting at a couple of days' notice, rather than taking months at a time for the group to convene in Vienna or some other capital of consensus," he said.
Meanwhile, he sees Iran being more cooperative this time around.
"Another positive thing for the cartel is Iran's tacit agreement to go with any deal struck by the group's leadership, despite Tehran not having an active role given the prevailing Trump administration sanctions against the Islamic republic," Krishnan wrote.
But there is arguably one more factor. Nowadays, America, not Saudi Arabia, is the world's largest oil producer, as was the case back in the old days.
That limits OPEC's power to be a "price-maker" in the oil market.
Fanis Matsopoulos, CEO of Universal Carriers SA, thinks OPEC has learned a lesson or two from the days of price wars with American frackers.
That's when collapsing oil prices gave a financial blow to major oil producers. "The previous price war between OPEC and frackers resulted in reduced government revenues, leading KSA and other major exporters to deficits," he said.
Still, Matsopoulos sees a frangible equilibrium in the oil market, as prospects for a sustainable recovery in the global economy aren't clear. He said, "We will face oil prices' adjustments from the demand side until there is a switch in supply which can be many months away."
Simply put, only time will tell for sure whether the oil cartel got the game right this time around.
Disclosure: I have no position in oil contracts.
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