OPEC meeting
Your essential guide to Organization of the Petroleum Exporting Countries (OPEC) meetings – find out how they affect global oil prices and other energy markets.
OPEC’s production discipline will fracture at this weekend’s cartel summit, and Saudi Arabia may go it alone and increase output, according to Gaurav Sharma, independent oil analyst and Forbes columnist.
IG Analyst
Publication date : 2018-06-19T14:13:18+0100
OPEC is meeting on Friday 22 June with non-OPEC countries, including Russia, joining them on the Saturday. Back in January 2017, Russia and Saudi Arabia agreed to curb global output by 1.8 million barrels a day to stem the slump in oil prices. The two countries produce around a fifth of world output.
Gaurav Sharma, independent oil analyst and Forbes columnist, is expecting the oil cartel’s discipline to break at this meeting. New pressures are the involvement of Saudi Arabia and Iran on opposite sides in the fighting in Yemen, and US President Donald Trump tweeting about OPEC ‘artificially’ boosting oil prices. Oil prices climbed above $80 last month after the US withdrew from the nuclear deal with Iran.
Iran, the world’s third largest crude producer, has reportedly said that Venezuela and Iraq will join it in blocking a Saudi/Russia proposal to raise oil production. The risk is that Saudi Arabia will choose to go it alone, boosting output. Sharma expects output to climb whatever OPEC agrees.
Russia will not mind the disharmony, Sharma believes, as the Kremlin think the time is right to increase output.
Sharma noted that Alexander Novak, Russia’s energy minister, has said oil inventories have come down to their five year average, and therefore it is about time to return some of the barrels that have been taken out of the market.
Sharma asks how long could this deal have lasted. While the signatories to the production deal have remained very disciplined, abiding by the cuts, the big players (Saudi Arabia and Russia) are very oil-centric economies and as a result they need to bring their produce to the market or risk losing market share.
Sharma thinks the production increase could be between 450,000 and 600,000 barrels per day. Currently across the globe production is around one 1.2 million barrels above the 99.2 million required every day. He believes a $100 dollar barrel was always unlikely, as US shale production was a buffer for any shortfall in light sweet to the Far East.
Crude’s rally during April and May was mainly in the short term contracts, Sharma says, while the six-month future remains in backwardation (where the spot price is higher than the future). This suggests the market did not expect prices to remain high for long. He sees this week being negative for crude, and Brent settling between $65-$70 a barrel on average for 2018, with West Texas Intermediate (WTI) at $60-$65. The prices respectively are $75 and $65 ( as of 19 June).
Your essential guide to Organization of the Petroleum Exporting Countries (OPEC) meetings – find out how they affect global oil prices and other energy markets.
IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
This information/research prepared by IGA or IG Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.
See important Research Disclaimer.
New client: +65 6390 5133 or accountopening@ig.com.sg
Clients: Help and support
WhatsApp: Click here
IG | Sitemap | Terms and agreements | Privacy | Security | IG Community | Refer a friend | Cookies | About IG
Disclaimer:
All forms of investments carry risks and trading CFDs may not be suitable for everyone. CFDs are leveraged instruments and can result in losses that exceed deposits, so please ensure that you fully understand, and are aware of, the risks and costs involved. Refer to the Risk Disclosure Statement and Risk Fact Sheet.
IG Asia Pte Ltd (Co.Reg.No. 200510021K) is regulated by the Monetary Authority of Singapore and holds a capital markets services licence for dealing in capital markets products that are over-the-counter derivatives contracts and is an exempt financial adviser.
IG provides an execution-only service. The information in this advertisement does not contain (and should not be construed as containing) investment advice or an investment recommendation, or an offer of or solicitation for a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. You should consider your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
The information on this site is not directed at residents of the United States or Belgium and is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
This advertisement has not been reviewed by the Monetary Authority of Singapore.
CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved.