On Thursday, December 5, the 177th meeting of OPEC representatives in Vienna began. It is important conference because OPEC may once again reduce production to eliminate the surplus of crude oil on the market.
The background for OPEC's activities is greater supply than demand, which may still be fragile due to the global economic slowdown caused among others by the trade war. Higher supply, lower demand may translate to relatively lower prices. Meanwhile, OPEC countries need higher oil prices to balance their budgets, and certainly not falling, but rising prices. Hence such determination in action.
The current meeting, which started on Thursday, December 5, will end today, on Friday, December 6, after which a specific statement is expected regarding new production assumptions and cuts. After the first day of the meeting, it is said that OPEC will decide to cut production by another 500,000 barrels of oil after agreeing to cut by 1.2 million barrels last year. However, the actual decline in production recently ranged from 1.5 million to even 2.5 million barrels. According to the Bloomberg agency, the average scale of cuts has been exceeded by 40 percent, which is about 500,000 barrels.
Saudi Arabia sets an example for other countries, especially Iraq, which even increased production, which the other countries do not like. The Saudis, although they had a limit of 10.3 million barrels, produced an average of 9.8 million. As a result, a representative of Saudi Arabia has even threatened that his country could return to previous production levels if some countries still do not adapt to the cuts.
Therefore, the market is expecting an official announcement, where even if cuts appear, they could be apparent. More attention can be paid to whether there will be a split in OPEC and OPEC + that could complicate the situation. Yesterday, the price of WTI oil rose to the highest level since September, exceeding USD 59 per barrel. Nevertheless, it was a very fragile move, which was quickly corrected by supply.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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