It’s a case of who flinches first.
Anyone interested in oil will be interested in Vienna this weekend. The Organization of the Petroleum Exporting Countries (OPEC) is discussing their strategy for the next year.
Early signals in the week pointed to an ‘as you were stance’ and after an informal meeting of the committee’s delegates on Thursday – when Saudi Arabia reaffirmed its belief that non-OPEC producers need to match the activity of OPEC members – it became clear no-one wanted to jump first.
This non-committal approach from each of the countries mixed with Iran’s defiance that it should be allowed to increase productions when sanctions are lifted next year, unsurprisingly meant oil prices remained largely static.
Early numbers on Friday morning (02:00 GMT) did see West Texas Intermediate (WTI) up 18 cents at $41.26 and Brent crude trading 15 cents higher at $43.99 at around. Trader activity largely mirrored this impasse.
Same strategy
It was 12 months ago when OPEC agreed to maintain market share in a bid to bring down prices – which proved very successful – in the hope of pricing out North American producers of oil using the more expensive fracking process.
Maintaining this stance would appear to be the likely outcome even though there is a strong desire from the OPEC cartel to reduce production to increase demand and spark a price revival.
Yet when you have countries such as Iran maintaining their position of oil production above expectations, it would be to others’ advantage should OPEC cut production.
OPEC is also feeling the sting of a saturated market by consistently losing business in major economies like China. In 2012, 70% of China’s oil imports came from OPEC countries, this is now down to 55% (in October 2015).
Speaking before any announcement was made, Michelle McGrade, Chief Investment Officer at TD Direct Investing said:
“Saudi Arabia has come to the party to reduce production but will they get the chance? This should put a floor under oil prices for the time being and should be good for oil stocks, but which ones?
“The oil sector is still fraught with difficulties because many oil companies are still battling to reduce their high cost bases but there are companies that are well positioned for a prolonged low oil price.”
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