Falling Oil Prices May Be Precipitated by Postponement of OPEC+ Meeting

UTC by Andy Watson · 3 min read
Falling Oil Prices May Be Precipitated by Postponement of OPEC+ Meeting
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The price of oil showed promise in the past few weeks when it became obvious that the global lockdown would be lifted. However, now the prices are falling.

The postponed meeting of OPEC and non-OPEC allied loosely known as OPEC+ has been identified as the reason behind the fall in the price of Brent crude futures. Wednesday prices saw oil fall below $40 when it became obvious that the meeting that was scheduled for next Thursday would not hold.

There have been speculations that the scheduled meeting would lead to the extension of the time frame in which the energy alliance planned reduction in oil production. The 9.7 million barrel per day is expected to stabilize the oil market from July through September.

It is common knowledge that the proposed production cut has the nod of the most influential members of OPEC and OPEC+ led by Saudi Arabia and Russia respectively. The one-month extension of lowered production was high on the agenda of the proposed meeting. However, with the uncertainties around the meeting, the deal may not be finalized soon.

Proposed Common Front

A report by the research analysis group Eurasia shows that despite past trade disagreements between Russia and Saudi Arabia, the proposed meeting would likely see each block reach a compromise citing that Russia is eager to ensure a common front is presented by OPEC and OPEC+. In the report, the analysts wrote:

“As for the Saudis, a short-term extension is an acceptable option given that there will probably be room to revisit cuts based on developments in the markets.”

Algeria which currently holds the chairmanship of the group wants the meeting moved forward from the scheduled date of June 9-10. With Brent crude futures down 1.5% on Wednesday afternoon trading at $38.91 and US West Texas Intermediate crude trading at $36.26, futures deals profits have been wiped out.

The price of oil showed promise in the past few weeks when it became obvious that the global lockdown would be lifted. The foreseen economic recovery in China was the main drive behind the rebound. Earlier in April, in a bid to prop up prices, OPEC+ made a concession to cut production by 10% in the wake of crashing prices due to coronavirus. Even though this was unprecedented, the 9.7 million barrel per day reduction is expected to stabilize oil price.

Higher Oil Prices May Not be Seen in 2020

The cuts which commenced on May 1 is expected to be tapered off to 7.7 million BPD by July. This would be sustained until the end of 2020. There would be further cuts to 5.8 million BPD by Q1 of 2021 until April 2022.

Analysts believe that the mood around the upcoming meeting is upbeat unlike what was obtainable in March when the Russians were at loggerheads with the Saudis over oil prices. Nevertheless, analyst Tamas Varga doesn’t think prices higher than $50 is possible this year.

Commodities & Futures, Market News, News
Andy Watson
Author Andy Watson

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