As OPEC Meets on 6th of December, What Can We Expect Of Oil Prices?
OPEC is expected to meet on the 6th of December to discuss cutting output. With oil prices falling by almost 30%, and production from U.S, Russia, and Saudi Arabia reaching all-time highs, this has put pressure on OPEC to reduce output to steady oil prices. With Qatar planning on pulling out of OPEC, due to increasing scrutiny on the political dominance of Saudi Arabia, OPEC finds itself at an unprecedented juncture, with OPEC members no longer willing to be pressured by Saudi Arabia into accepting policy. With slower demand, and oversupply, analysts expect OPEC to cut output from anywhere from 1-1.4 million barrels per day. Therefore, what would a cut in this range mean for oil?
Both WTI and Brent have rallied recently, helping companies such as Exxon (NYSE:XOM) and others, as OPEC is set to meet. Oil prices may rally back up to $60 for WTI and $70 for Brent should a consensus be met. In order for oil to re-balance current supply may have to be cut by as much as 1.5 million barrels.
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Saudi Arabia may not agree to a cut of 1.5 million, as geo-political pressure from the Trump Administration weighs on the meeting. Qatar responded to the lack of co-operation from Saudi Arabia by quitting OPEC, and is expected to focus on Natural Gas production. In a tri-lateral meeting between Canada, Russia, and Saudi Arabia, Canada showed a willingness to join the oil producing nations in reducing supply.
A cut in oil supply is key to re-balance the market, and the U.S, which recently became energy independent, is equally dependent on higher oil prices as shale producers will struggle with oil at $50 a barrel.
In conclusion, the December 6th meeting will be key, and we expect that some initial agreement will be reached, because a failure to reach consensus may further drive down oil prices. With many OPEC members relying on revenues from oil sales to fund their fiscal deficits, OPEC should reach agreement, similar to the one reached in 2017.
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