Crude oil prices have been gyrating in Monday’s trading session, after harsh declines overnight on increasing doubts that Wednesday’s critical OPEC (Organization of the Petroleum Exporting Countries) meeting will not end with an agreement on production cuts.
The crude oil producer cartel is trying to get its 14 member states, along with non-OPEC member Russia, to execute coordinated output cuts intended to decrease global oversupply that have dogged the oil market for two years, even halving the prices in that period.
OPEC is scheduled to hold a crunch meeting in Vienna on Wednesday, where the output cut agreement is expected to be finalized.
A meeting set today between OPEC and non-OPEC producers was cancelled after Saudi Arabia declined to attend, while worries over the possibility of a deal pushed the crude oil volatility index near a nine-month peak.
As the market dealt with the unstable outlook of the major oil producers’ consensus, oil prices edged higher on Monday, after falling as much as 2% in early trading.
As of writing, global benchmark Brent futures jumped to $48.72 a barrel, up 49 cents or 1.00%. Prices for both Brent and crude oil have been gyrating throughout Monday’s session.
Here’s FSMNews reporting the latest story on the upcoming OPEC meeting on Wednesday. Keep updated on the oil price market with us.
Doubts on the Agreement
Previously in September, OPEC reached an agreement that it would trim production to between 32.5 million and 33 million barrels per day. However, reaching an agreement to this deal has been seen as quite problematic on the reason that some producers are reluctant to cut oil output.
Over the weekend, Saudi Arabia’s oil minister Khalid al-Falih stated that inventory curbs may not be necessary, justifying this by saying oil prices will stabilize in year 2017 even without an interpolation from the OPEC. These remarks were viewed as a hint that the agreement on the cartel’s first supply cut in eight years may not be implemented in the Vienna meeting, thus the drop of oil prices on Monday. Furthermore, the statement augmented the already simmering disagreement between OPEC and non-OPEC crude exporters such as Russia over who should trim production by how much.
Meanwhile, oil ministers from Algeria and Venezuela were to travel to Moscow on today, ahead of Wednesday’s meeting, in attempt to convince Russia to be involved in curbing rather than simply freezing output.
Analysts deemed that a sort of compromise will be reached, but qualms continue over whether it will be enough to support the market.
Should a large output cut push through, Nordea analysts said that it could push oil prices closer to $60 per barrel before year's end. “Failure to reach an agreement could cause oil prices to fall back to the low $40 per barrel.”
Additionally, analysts said that even if some form of an output control is declared, the details matter greatly.
“Do not take an announcement of a headline cut of 1 million barrels per day (bpd) at face value. It could still imply an OPEC production level considerably in excess of 33 million bpd, depending on developments in Libya and Nigeria and the speed and rigor of compliance,” David Hufton, managing director of brokerage PVM Oil Associates Ltd. wrote in a note. He added that the risks of failure are high for producer countries reliant on oil export revenue.
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