What’s Happening with Oil Prices Smells Like… Gunpowder?

History teaches us to be cautious, whether in good or bad news. But even more so when the news is paradoxical. Such a paradoxical ‘news’ item emerged in the financial markets recently amidst the global turmoil of economic and political events. The ‘news’ was that the oil producers’ club, the infamous OPEC+, decided on an ultra-tripled increase in oil production for June. Why might this be considered ‘bad’ or ‘paradoxical’? We’ll see over the next few months if it’s truly ‘bad,’ but what we can certainly observe today is that it’s ‘paradoxical.’ Why paradoxical? Because, as shown by recent data, oil prices – not related to what we pay here in Greece at gas stations – are already the lowest they’ve been in at least four months. This means that a decision to increase production, like the one announced last week, will naturally push prices even lower. This goes against the interests of the producers who make this decision. Moreover, all estimates from the IMF, World Bank, and especially the markets indicate that the global economy, led by the U.S. and Europe, is steadily heading towards stagnation, if not recession. This implies reduced fuel demand against a backdrop of hyper-increased supply. The ‘paradox’ lies in OPEC+’s decision to increase supply amid anticipated declining demand due to economic slowdown. Consequently, this leads to further price compression and thus reduced revenues for producers. Even more paradoxically, this decision was made with Russia’s agreement, under conditions where prices around $60 per barrel nullify the economic incentives keeping American shale oil production and export companies afloat. The cherry on top of this ‘paradox’ cake is that this occurs amid increasing alignment of interests between the U.S., Saudi Arabia, and even the U.S.-Russia relationship concerning developments in Ukraine. So, what’s really happening? Given the centrality of cheap oil overproduction in international economics and geopolitics, history tells us that apparent paradoxes often conceal other ‘moves’ and ‘forces’ we don’t immediately perceive. While speculating about the real reasons behind these moves could be risky, one undeniable factor capable of reversing oil prices, as seen historically, is war—especially in oil-producing regions.