OPEC and the oil markets

Monday, 18th June 2018 11:24 - by Rajan Dhall

This week is a pivotal week for the energy markets as OPEC and Non OPEC officials meet in Vienna to discuss an end to the output cuts. It has been anticipated that now is the time OPEC may start to normalise production levels after emergency action took place following the glut seen in late 2015 to early 2016. Following the action oil prices have risen in line with OPEC expectations, spot WTI moved from a low $26.08/bbl to a high of $72.88/bbl in May 2018. 

This price rise was not only due to an output cut, as other issues pushed up prices further - no doubt welcomed by the oil producing nations.  First of all, US president Trump exited the Iran nuclear deal and issued more sanctions on the nation. The US leader boasted that the agreement was a bad deal for the US and he couldn't believe it was agreed upon in the first place. Although many other nations did not agree, the price of oil rose despite this and we have since seen that countries like India and China are still accepting oil from Iran. Elsewhere, Venezuela have fallen off an economic cliff; the South American nation fell into economic troubles and their oil companies where unable to meet obligations. There are now signs that the situation is getting worse after Argus Media reported that the country have “proactively shut in oil production to cope with nearly replete terminal storage, further accelerating an output decline and bringing the OPEC country closer to the psychological barrier of 1mn b/d.”

Back to the OPEC meeting and investment banks are focusing on the amount of oil being brought back to the market with estimates ranging between 500k - 1mln bpd. 

SocGen: Saudi Arabia, The UAE, And Kuwait Will Increase Output By A Combined 500k B/D, Beginning In July

Goldman Sachs: Have a base case: 1mln bpd increase

Barclays: Believe an increase of 700-800k bpd from Q2-Q4 18

I have put this in to give you a consensus of what analysts are expecting from the meeting as anything under could see the price of oil surge and vice versa.

The Writer's views are their own, not a representation of London South East's. No advice is inferred or given. If you require financial advice, please seek an Independent Financial Adviser.