OPEC … Guessing game

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TOMORROW is not far away to know the outcome of OPEC’s meeting in Vienna, as well as the possibility of Russia joining the meeting as a strong partner for creating OPEC+. Everyone is betting on the outcome of the meeting to know if there is going to be an increase in the oil production or if there will be more production cuts or if the status quo will be retained to leave the production level as it is, because last month, voluntary production cuts of 1.5 million barrels were implemented. Oil prices are still in the low 70s level, which is not adding much to the OPEC’s price target of above $80 per barrel.

This does not seem forthcoming at the moment, despite every effort being exerted by reducing oil production rates. Also, Russian oil production rate remains unchanged, despite the G7 boycott, with a $65 price gap on its crude oil sales, and $100 for petroleum products. At such cheap prices, India and Russia are finding it very comfortable to buy and import as much ullage available in their countries, and to convert the same raw oil into products, which are then shipped to G7 countries at international prices. The same can be done by other producing countries, as they can buy cheap finished products from Russia, use it domestically and sell their own products to international market, thus making huge margin on the imported Russian products.

The concern is the volume that other countries are going to push into the market, which makes things awkward in terms of the reason why the oil price is not at the level of $80. The USA, Brazil and Canada are pushing more oils, something perhaps OPEC did not take into consideration. It also seems as though the USA will again reach its historical level of close to 12 million barrels. It certainly will not be good for OPEC+ to reduce production at this time, especially when the demand for gasoline is on the rise due to the start of the driving season as well as the upcoming July holidays, as which the preparation for autumn will begin and the demand for oil will pick up again. It seems the best option for OPEC is to leave everything in its place and let the market forces do its magic with the prices.

The demand will soon start rising, so there is no need to annoy the consumers. One last observation… The meeting of OPEC+ tomorrow is going to be different this time with the absence of the biggest news agencies – Reuters and Blomberg – as they were not officially invited this time. However, that will not stop them from performing their core business of reporting and analyzing the outcome. We hope it will be the last time, and they will be back with the rest of the media next time. In conclusion, we hope the result of OPEC+ will not be shocking, but will be within the expectations of no change in the production level. OPEC has its monthly agenda to take further actions if needed!

By Kamel Al-Harami
Independent Oil Analyst
Email: [email protected]

This news has been read 7386 times!

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