Crude oil is cheaper than OPEC wants it to be. After an attempt to raise oil prices through production cuts, the oil cartels will meet again. This time, the OPEC Meeting in Vienna, the crude oil producers can decide to extend the cuts. Energy ministers from OPEC countries will be joining a group of delegates from non-member producers in their Austrian headquarters.
While the formal decisions will be taken on Thursday, the parties to the previous agreement will be meeting before it. Last time the parties met in November 2016, they decided to cut oil production till June 2017.
Here are three things to expect from OPEC Meeting in Vienna
Deeper Production Cuts
Saudi Arabian oil minister has already hinted towards a deeper and prolonged cut in production to help push oil prices. Saudi Arabia is the leader of OPEC and the largest oil producer in the cartel. It has already suggested that production cuts will continue till March 2018. Russia, the biggest oil producer outside of OPEC, has also agreed to continue cuts till 2018. Ever since the Brent crude index went down to $28 after the 2014 price collapse, oil failed to recover. After the production cuts, the prices have moved up, barely touching $55 per barrel. OPEC wants more cuts so that prices can reach the $115 per barrel on Brent crude i.e. its pre-crisis price.
Conflict of Interests
Not all oil producing countries are interested in maintaining compliance with production cuts. Kazakhstan, for example, is insisting on increasing production instead of decreasing it. Other countries are still holding discussions with the OPEC about the time and extent of the cuts. Nigeria has rebounded its oil production. There is also the Iran factor to take into consideration. On the other hand, US shale oil producers are pumping more oil. This suggests that not all oil producing nations agree of cuts.
Less Oil, More Money
The OPEC countries are notorious for not complying to agreements. However, that is the thing of the past. The countries surprisingly maintained over 90 percent compliance, cutting about 2 percent of the global oil supply. As prices rebounded over the first half of 2017, the oil producers have been able to get their profits back. Producers earned more by cutting production. In fact, Saudi Arabia could be reducing its deficit to 10 percent this year, per IMF.
Though OPEC has gained significantly from production cuts, US shale oil companies have been profiting because of their learner models. Will OPEC cut into shale’s profits or continue increasing the size of its own revenue? The Vienna meeting could reveal details of the plan.
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