Oil ahead of OPEC meeting

With less than two weeks to go until the next OPEC meeting, on December 4th in Vienna, there is a lot of speculation over what decision the group may make.

The major fall in Oil prices in the last 18 months has been a major focal point for the markets. More recently it has been on the slide again. Brent was trading above $50 a barrel in early November but has since dropped and has traded as low as $43.15. This was less than a dollar above the multi year lows seen in late August. There is a similar story in WTI which traded below $40 last week. There have been a number of factors driving this slide in the Oil price. Concerns about Chinese growth have weighed on Oil, as well as the Global markets and has played a part in the drop. There have been eight consecutive builds in US Oil inventories, increasing the supply glut, which is at its highest seasonal level in 80 years. The lifting of Iranian sanctions means that Iran is looking to get up a million barrels a day back to the market and they have asked OPEC to accommodate this increase.

The low Oil price has a detrimental impact on Oil producing nations in OPEC as well as other economies, such as Russia.                 This has led to calls for OPEC to reduce supply, currently set at 30 million barrels a day. For the last year OPEC has resisted the calls of some of its members to cut supply, citing previous cuts, which result in a loss of market share as other non OPEC countries do not cut their production.

The Venezuelan Oil minister has come out and said that Oil could fall below $30 if OPEC do not take measures to stabilise the price. They have called for cuts in production previously and have been lobbying non OPEC nations, such as Russia, to cut alongside OPEC to help raise the price. This drew a response from Saudi Arabia, who are prepared to use all measures necessary to ensure a stable Oil market. This rhetoric akin to that of ECB President’s Draghi, highlights the need in Oil producing countries for a higher Oil price.

The speculation is set to continue up to the meeting and volatility in the markets is highly likely. Any decisions OPEC takes will of course be key for driving the price of Oil for the next few months but what else is discussed could be important. For instance, at this point it remains to be seen just what Saudi Arabia and the rest of OPEC see as a ‘stable Oil market’, with a price of at least $70 being called for by a number of countries.

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Reuters: Business News