What to Expect From This Year’s OPEC Meeting in Vienna – Introduction
This week, high-stakes meeting will happen in Vienna, Austria. The OPEC oil ministers will meet for the annual meeting where they discuss the dynamics in the crude oil market. This meeting plays an important role in the oil market because it sets the tone for the coming year. A few years ago, it was during this meeting that OPEC decided to flood the oil market with the goal of bankrupting the US oil companies. This decision turned out to be another flop by OPEC. Another important flop was the oil embargo of 1973.
This year’s meeting comes at a difficult time for the market. In the past month, the prices of crude oil fell sharply, with the WTI falling below $50 and Brent falling below $60. There are a few reasons for the decline in oil prices. First, as a result of the ongoing trade war, the global economic growth is expected to slow in the coming few years. As global economic growth slows, so does the demand for crude oil.
Second, investors expected the supply of crude oil to slow down after Iran’s exit in the oil market. However, the US gave a number of waivers to countries. This means that Iran has ways of continuing to participate in the oil market.
Third, there has been an increase in supply for the commodity. In recent weeks, data from the US Energy Information Administration (EIA) and American Petroleum Institute (API) shows that the US production is increasing. As the supply increases, the price of crude tends to fall. Already, the US is the biggest oil producing country and is expected to increase production as a number of pipelines come online in 2019.
Therefore, this meeting will be very important for the market. One of the reasons is that of Jamal Khashoggi, a Saudi journalist who was killed recently at the Saudi consulate in Turkey. The Saudi administration led by the crown prince Mohammed Bin Salman have been accused of orchestrating the murder. In the United States, the Trump administration has been under pressure to impose sanctions on the crown price. Trump has been adamant, fearing that such a decision will lead to higher oil prices that will affect the economy negatively. He also believes that Saudi will divert military orders to Russia and China.
While Saudi Arabia has announced a desire to boost oil production, its leaders are keen to please the US president for going easy on them. However, Saudi wants higher oil prices as the kingdom prepares to list its national oil company, Aramco.
In the just-concluded G20 meeting, the leaders of Russia and Saudi agreed on the need to boost oil production. In the past few weeks, Saudi has been consulting with other OPEC leaders on how to word the press release. A suggestion has been made to make the statement unchanged from that of 2017 meeting. Essentially, this will be an indirect way of reducing oil supplies because OPEC members are currently pumping as much as they can.
The bottom-line of all this is that the era of low crude prices could be coming to an end. However, it might not last as the US prepares for a number of oil pipelines, which are set to open in 2018.