The oil market is fed up with production growth

It’s a buy-everything market today, with one big exception.

Oil fell sharply today in the past two hours. The catalyst: US oil drilling rigs rose by 5 in the latest Baker Hughes weekly count. OPEC+ now has around 5 million barrels per day of spare capacity and there’s no sign yet of US production growth falling (let alone declining). There had been hopes that demand growth next year would absorb OPEC spare capacity but even OPEC is only forecasting 2.5 million barrels per day in demand growth; so it would take another year like that to tighten the market.

In the meantime though, US production continues to expand, with some help from Canada, Guyana, Iran and Venezuela.

Worse is that this is very likely to be the limit of OPEC discipline. There won’t be another cut and there’s the very real possibility of a war for market share next year and a free-for-all, leading to oil in the $40s.

Now that would be great for the inflation picture but would put most private oil companies into a money-losing position. You would think that threat would discipline them, but here we are with rigs growing.

So the market is starting to price in a real mess in oil next year, or at least the risk of that.

This article was written by Adam Button at