What to Expect From the Upcoming OPEC Meeting – Introduction
Crude oil is without a doubt one of the most important commodities in the world. All the 7 billion people in the world today use products that have been made or transported using crude oil. For example, when the poorest people in the world dress up, these clothes would not be there without the crude oil.
Unlike other commodities that are found everywhere, crude oil is found in a few countries. These countries have a lot of power and wealth. Some of the biggest producers of crude oil have formed an organization known as OPEC, which is one of the most powerful in the world. OPEC is responsible for the supply numbers of all member countries.
A few years ago, OPEC members held a meeting to discuss the threat from the United States. At the time, US oil producers were investing in fracking. This is a technology that enables the companies to drill the crude oil vertically. The calculation with that flooding the crude oil markets with a lot of supply would lead to reduced prices. In turn, this would produce a major challenge to the highly leveraged crude oil suppliers. Many of them would be forced to go to bankruptcy.
Their increased supplies led the crude prices to fall below $30 in 2015. As a result, a few US companies filed for bankruptcies. However, the large ones continued to innovate. This increased their supplies.
In 2016, after seeing that their decision was a miscalculation, the OPEC countries and Russia agreed to start limiting production. This saw the price of crude oil moving from below $30 to a high of $80 a barrel this year. As the oil has moved up, the US companies have continued to lower their costs and make bumper profits.
This week, the OPEC countries will meet in Vienna to deliberate on the way forward. They will meet at a time when the price of crude oil has fallen from the three-year high. Brent is currently trading $73, which is lower than the high of $80 reached a month ago.
In this week’s meeting, the officials will meet to deliberate on whether to increase or reduce supplies, or hold production at the current levels. They will be unlikely to increase supplies because if they do, they will be where they were a few months ago. Already, the US president has accused the OPEC cartel of increasing crude prices.
There will also be the question of the significance of OPEC, the implications of the Iran deal, and the sanctions on Venezuela. On the first issue, we are operating at a period when the US is the biggest producer of crude oil in the world. Every day, the country pumps more than 12 million barrels of oil. This amount will increase as the country moves to attract more foreign truck drivers. On the second and third issue, the leaders might deliberate on the US and the use of dollars to trade the crude oil. The countries might move to adopt a new currency because the dollar is affecting how the countries do business.