OPEC expected to curb output, will crude oil prices reverse?

In the past few days, oil prices have marginally recovered on back of an expected production cut by OPEC as well as the apparent progress in trade talks between the US and China regarding the tariff war.

Dec 06, 2018 03:12 IST India Infoline News Service

The big day is here! All eyes are now on the outcome of the OPEC meet. Many questions are expected to get answered this week – will the OPEC cut its production target and by how much? What will be Iran’s stance in the meeting? How will the market react to the outcome? And, has the market already factored in some production cut?

In the last meeting in June, OPEC agreed to pump in more oil in the global market to put a cap on the prices which rallied till ~$86/bbl (Brent) in early October. This decision was bolstered by the increase in US oil production, waivers to Iran sanctions, and stabilization of production in countries which were facing production issues such as Venezuela and Libya. These factors led to a steep fall in the oil prices to ~$59/bbl (Brent) in the past two months due to supply glut tensions.

Saudi output has also been rising as it seeks to ensure enough supply with the Iranian export slump, following the re-imposition of US sanctions. Buyers of Saudi crude ordered more barrels in early October to guard against a sudden plunge, although the US administration, in the end, granted more waivers than expected.

In the past few days, oil prices have slightly recovered on the back of an expected production cut by OPEC and the apparent progress in trade talks between the US and China during the G20 meet. OPEC, Russia, and other allies will meet this week to decide the production policy for 2019. Saudi Arabian Oil Minister Khalid Al Falih said it would be too early to say whether the OPEC+ group will cut oil production when it meets in Vienna. Reports say that OPEC might cut production by 1-1.4mbpd and anything less than that could lead to further decline in crude prices.

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