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Outcomes of next OPEC meeting may have different effect on market

Outcomes of next OPEC meeting may have different effect on market
Increase of oil prices will depend on production cut, along with extension of OPEC agreement

Baku. 22 May. REPORT.AZ/ An outcome of the next meeting of OPEC and non-cartel countries in Vienna on May 24-25 is of a key importance for oil market. Report’s expert group believes that future trend of oil prices will be determined based on several variants of possible outcomes of the summit: “The most positive option for oil market in terms of summit results may be an increase in production cut quota, along with extension of production cut agreement for 9 months”.

Currently, the quota is 1.8 mln barrels/day. If the summit makes decision in this direction, the oil price may soar over 60 USD/barrel. The second option is keeping production cut quota as it is, while extending the agreement for 9 months. In such case the oil price will shortly rise to 57-58 USD/barrel then slide to 50 USD/barrel again. Because in such case shell oil producers in US will continue to increase production, which will rise supply in global market. Another option is extending agreement term for 6 months with current production quota. In such case the oil prices will keep around 50 USD/barrel or even drop lower. The last and worst option may occur upon disagreement of oil producers, which will pull down the prices to 40 USD/barrel or lower.

Report’s expert group believes, the summit to end up with 9-month prolongation of the agreement with current production quota. As a result, after some rise in the short-term the oil prices will decline again and stabilize in the range 45-55 USD/barrel till next meeting. Of course, production of shale oil in US will be closely watched during this period. If the US producers find the level of 50 USD/barrel acceptable, then the oil prices in coming years will drop below this level. Because OPEC and other oil producing countries will not want to concede their market shares to US companies. The experts group notes that expectations on disagreement in the next meeting is rising. Low oil prices will force producer countries to increase output to save their economy and close the budget deficit. 

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