The Organization of Petroleum Exporting Countries (OPEC) and Non-OPEC nations (specifically Russia) came to a decision in 2016 to drastically cut oil production in an attempt to reduce the global oil glut and raise prices. As of the first half of 2018, it seems to have worked and the price of oil has rebounded to $80/barrel (Brent) for the first time since 2014. Now that prices have recovered and inventories are below the 5 year average, it’s a common belief that these countries will likely increase production during the all-important OPEC meeting set for this Friday, June 22nd.
Three geopolitical issues to take note of that will affect this decision should be considered as well.
US Tariffs on China – Last week President Trump pushed ahead with tariffs on $50 billion of Chinese imports and China retaliated by imposing import duties on US Products, including crude oil.
US Sanctions on Iran – With the recent decision by President Trump to pull out of the Iran nuclear deal and re-impose stiff sanctions on the country, it is expected to stall that countries output, which was otherwise (and at the time of the initial production cut) expected to shoot up sharply.
Venezuela Crisis – The current situation in Venezuela (Story) has further highlighted the decline in the overall OPEC oil output.
So, in order to compensate for the loss of supply from those two important member countries, OPEC’s de facto leader Saudi Arabia and Russia (largest Non-OPEC producer), are in talks to ease off production cuts.
Many expect the meeting to result in production increases of approximately 1 million barrels per day. This would increase output in an already oversupplied oil market and will likely pull down the current oil prices.
Ultimately, the decision will influence how much of an impact it will have on our global economy and oil market prices for the remainder of 2018 and early 2019. One thing is for certain, all eyes will be on this meeting at the end of the week, and most participants will be attaching the “All-Important” moniker to the word meeting.
