OPEC’s Last Stand

Today’s the day we’ve been waiting all year for. 

And as you read this now, the 57th Meeting of the Joint Ministerial Monitoring Committee and 38th OPEC and non-OPEC Ministerial Meeting is taking place, via videoconference. 

These JMMC meetings happen just twice a year, and the outcome of this one is of particular importance. In fact, some would call today’s little OPEC get-together one of the most important meetings in a long while, as it decides the fate of the group’s production cut deal. 

I don’t think the outcome will be very surprising to anyone here in our investment community, either. Crude prices have been abnormally low all year, and if there’s one thing I’ve told you all year, it’s that the Saudis will defend $70 oil with their lives.

And believe me, it’s good to be the king.

The moment that OPEC and its allies announced they were unwinding their production cuts starting at the end of 2024, the market bears rejoiced in triumph. 

They had good reason to, too. 

With all the geopolitical volatility that has engulfed the oil markets from the escalating wars in both Ukraine and the Middle East, the only thing that has kept a lid on prices has been OPEC+ holding back a total of nearly 6 million barrels per day. 

Of course, the moment that today’s meeting was delayed for a few days, the immediate sentiment was that there’s trouble in paradise over at OPEC headquarters. Were the Saudis finally losing their iron grip on the oil cartel?

Don’t count on it. Although the official decision hasn’t been announced as I write this, the overwhelming sentiment is that OPEC+ will extend the production cut deal through the first quarter of 2025.

That makes sense, doesn’t it?  

However, it’s important to realize that there’s more to this. 

Today’s decision decides the fate of the formal OPEC plan to keep production at 39.725 million barrels per day. Then we have another eight countries that are voluntarily cutting 1.7 million barrels per day, with yet another 2.2 million barrels per day being curtailed from another set of cuts. 

But here’s the dirty little secret surrounding global oil supply next year…

No matter how long OPEC+ keeps extending their cuts, that’s not what’s concerning. 

I’m more concerned with the overly optimistic growth projections from non-OPEC supply growth. Groups like the IEA have made it routine to overestimate production growth from countries like Brazil who aren’t living up to expectations. 

Those all-too-rosy outlooks extend to U.S. tight oil production, too. After the surprising increase in oil output in 2023, when U.S. production grew around one million barrels per day, it seems as if people are expecting more of that kind of growth ahead. 

Let me let you down gently… it’s not going to happen.

Even the drill-baby-drill mantra from the incoming Trump administration wouldn’t be enough to push our oil production growth that high in 2025. Remember, today it’s all about drilling efficiency — pumping more with less. 

In September 2024, U.S. crude production averaged 13.2 million barrels per day. Sure, we’ll see U.S. output rise next year, but it won’t be by some astronomical amount. 

Meanwhile, global demand has been slowly chugging higher and higher to new all-time records — and it will continue to do so on the back of India and China (assuming China can get its economy back on track). 

Fortunately, there is a group of oil companies that are able to take full advantage of both U.S. and Asian demand, and they’ve attracted the attention of one legendary investor with a $325 billion checkbook just waiting to be unleashed. 

You really need to check this one out for yourself.