U.S. Recession Fears and Idle OPEC+ Dragged Oil Prices Down

Brent crude prices dropped by 5.4% this Wednesday and by 7.4% since the beginning of the week. It is the highest one-day decline this year, and the most devastating weekly drop since May 2023.

Traders fear the recession scenario in the United States may come into action, while the Organization of Petroleum Exporting Countries and its allies, known as OPEC+, is inactive. Chances for recession scenario increased dramatically after ADP has released its Nonfarm Employment Change estimate for September at ultra-low 89,000 against 153,000 expected. This is the lowest data since the beginning of 2021. Investors are also widely debating a possible yields curve inversion collapse after yields on U.S. 10-year Treasuries surged above 4.88%, the highest level since 2007. This rally led to a very tight gap between yields of 10-year and 2-year debt. Such collapse of the yields always led to a recession in the U.S. economy. 

OPEC+ has performed no action so far to avert oil prices stalling amid these increasing recession fears. The cartel has responded swiftly to lower risks with introducing more production cuts. This time, OPEC’s Monitoring Committee has recommended to keep the current production level unchanged with cuts at 1.3 million barrels per day active by the end of 2023. This could be a very unreasonable decision as the demand for fuel in the United States dropped to the lowest level of the last 25 years. If OPEC+ would perform its inability to counteract stalling demand for fuel in the American market then Brent oil prices would easily miss $100 per barrel target. That may result in falling oil prices towards $55.00-65.00 per barrel of Brent crude. This is a huge 30% discount from current prices at $85.80.

OPEC+ members like Saudi Arabia and Russia would be certainly unhappy with prices below $73.00-75.00 per barrel of Brent crude. Otherwise, we may assume that Saudi Arabia has reached some kind of informal agreement with the United States to get oil prices down. If prices would go below $83.00-85.00 per barrel silence by the cartel in order to stabilize prices would signal such informal agreement might be active.