Crude oil prices are trailing high with prices of Brent crude oil futures recovering from USD 56.15 (low on 3 October 2019) a barrel to the present rate of USD 61.27 (as on 2 December 2019 01:55 PM AEST) ahead of the OPEC’s 177th meet.
The oil cartel is all set to conduct its annual meet on Thursday in Vienna, Austria, where the group would hammer out the agreement on how they would manage the oil production in the coming year.
The decision to take out 1.2 million barrels per day from the production is nearing its deadline of March 2020, and the decision over how the production should be managed ahead could be taken at the meeting amidst the Aramco IPO.
To know more about the Aramco IPO, Do Read: Aramco IPO To Be Larger Than Alibaba’s Iconic Offering? Or Oil Dynamics Could Play a Spoilsport?
While the cartel could take the decision to maintain the current curbs, the oil market is speculative at the moment, as the market participants interpret that the production cut is the only way to keep the price supported amidst the current tepid demand in the global market.
To know more about the current demand and supply dynamics, Do Read: EIA Oil Forecast Unfolds; Crude Experiences Supply Glut, While ASX-Energy Retailers Knocking Heaven’s Door
The global oil market is currently experiencing a supply glut despite a production cut of 1.2 per cent of the global demand by OPEC, and weaker demand in the wake of the ongoing U.S-China trade war. The United States is presently up in the production game, with the average production of 12.4 million barrels a day.
The previous production cut by OPEC have seen loopholes with Iraq and Russia not abiding as much as Saudi Arabia, Kuwait, and Angola under the deal of the OPEC members; however, the industry experts anticipate that Russia and Iraq would abide by the terms of the deal more seriously this time to support the oil prices, as weaker prices in the oil market is currently hampering the current economic situations of these countries.
The new oil minister of Saudi Arabia- Prince Abdulaziz bin Salman had previously confirmed his viewpoint on the market with the statement of sticking to the oil curbs, which is self-evident enough to anticipate that Saudi is not anytime soon increasing the production.
To Know More, Do Read: S&P/ASX 200 Energy Recovers as New Saudi Oil Minister Sticks to the Production Curb
The oil minister could further put some pressure on the peers to stick to the original agreement as the minster has cleared time to time in his statement of taking the responsibility of maintaining the steady crude oil prices in the global market off-shoulder if other OPEC members do not comply.
The assertive tactic could be the chance of the newly appointed oil minister to secure his authority over the consortium of oil-producing countries, which could further ensure the realisation of the minister’s target of 2 trillion U.S. dollar valuation of the Aramco’s offering, which has already reached approx. 1.7 trillion at the issue range of 30 to 32 riyals a share.
Post the massive oil prices crash in 2014; Saudi Arabia took the accountability of managing a significant portion of the global oil supply chain to support the oil prices in the international market. Saudi has tied-up outside of the producer group to other major oil producers such as Russia to bring together the countries with large oil production capacity.
However, previously Russia had diverted from the decided agreement with eight months of higher than agreed production out of total eleven months, which is now, making the upcoming decision of Russia crucial in the analysis for future demand and supply dynamics.
Russia The Game Changer
The oil-producing companies in Russia believe that oil production cut would only support the rival oil producers as there could be no point in extending the current production cut from its deadline of March 2020. While the relationship between Russia and OPEC is just not limited to short-term and is a strategic relationship, Russia could deny OPEC from curbing the production ahead of the deadline to support the domestic oil producers.
If Russia decides to keep the production at the normal level in the year 2020, the oil market could further see a boast in the supply chain, which could create problems for Saudi Arabia even if the oil kingpin decides to continue the production curbs.
Recently, the International Energy Agency (or IEA) warned OPEC over the chances of surmounting oil supply in 2020 amid an increase in production from non-OPEC oil-producing countries.
- The IEA in its monthly report anticipated that, while the oil market will face a small deficit in the second half of the year 2019, the supplies are expected to surge in late 2019 and into 2020.
- As per the IEA estimation, the supply will surpass the demand for OPEC’s crude by approx. 1.4 million barrels a day in early 2020.
- The warning may prompt the new energy minister to consider more deep production curbs.
However, while the market is getting speculative over the possibility of a further production curb, the oil market experts suggest that the demand would decide the prices rather than any current stance on the production.
However, a large cut could eventually support the oil prices; thus, the OPEC annual meet is capturing the attention of the oil investors across the globe.
To know how the demand is likely to push the crude oil prices in the international market, and which parameters are suggesting such as move, Do Read: EIA Forecasts on the Brent Crude Oil; Crude Oil Prices Likely to be Demand-driven Ahead?
Global Oil Demand Scenario
In the status quo, the demand for oil is currently facing some headwinds amid global stance to curb out the carbon footprints, which is promoting the renewable energy and shifting many oil consumers towards LNG as a viable replacement.
Apart from that, the current bilateral trade tension between the United States and China has also exerted tremendous pressure on the global oil demand.
To know more about the current demand scenario. Do Read: EIA Forecast Brings More Shock Waves For ASX-listed Oil & Gas Explorers
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