Posted: Dec. 03rd 2019

OPEC + Meeting Preview


This Thursday, OPEC members will meet in Vienna to review and discuss the state of the international crude oil markets. On the following day, OPEC members will hold joint meetings with Russia and other exporters (OPEC+) to determine the future of their existing production cut agreement.

The OPEC+ production cuts were initially put in place in January 2017. The original agreement had a duration of 12 months. However, due to continued market weakness, the OPEC+ agreement was successively extended through 31 March 2020. Despite the extension of the OPEC+ production cuts, international crude markets have traded most of 2019 in a fairly circumscribed band – WTI between $50 and $60 and Brent between $60 and $70 per barrel.

There are several reasons behind the markets’ relatively muted response to the extended OPEC+ production cuts. First, the rise of US crude oil production. In January 2017, the date the OPEC+ cuts was initiated, US crude oil production was roughly 8.85 mb/d. Over the past three years, US crude oil production steadily increased and recently hit an all-time high of 12.9 mb/d – an increase in excess of 4.0 mb/d. Second, during the term of the OPEC+ agreement, Russian crude oil production has increased (despite its commitment to curtail production) from 11.1 mb/d to 11.7 mb/d. Third, Iraq’s crude production over the same period has increased from 4.4 mb/d to 4.8 mb/d as it continues to recover from the Iraq War. Finally, anemic global growth and international government energy policies focused on sustainability and climate change policies have curtailed the overall demand growth for crude oil.

In viewing the above, one might start to believe that the stars have aligned against the international crude markets. While there have been many factors suppressing the price of crude oil, there have also been several events supporting prices. The US government’s introduction of unilateral sanctions against Iran (in contradiction of the JCPOA) has negatively impacted Iran’s crude oil production. In 2017, Iran was producing approximately 3.8 mb/d – today, its production is down to approximately 2.1 mb/d. Moreover, the continued political and economic turmoil in Venezuela has resulted in a material drop in its crude oil production. Back in 2017, Venezuela was producing approximately 1.9 mb/d – today, it is producing 685,000 b/d.

In view of these facts, the OPEC+ group has a challenging meeting ahead of them. Should members take no action and opt to review both the agreement and the market at the end of Q1 2020 (the expiration of the existing agreement), markets will undoubtedly react negatively. On the other hand, if the group announces deeper cuts and an extension of the deal, markets most likely would initially react positively. However, soon after the news, questions would quickly arise as to where these In viewing the above, one might start to believe that the stars have aligned against the international crude markets. While there have been many factors suppressing the price of crude oil, there have also been several events supporting prices. The US government’s introduction of unilateral sanctions against Iran (in contradiction of the JCPOA) has negatively impacted Iran’s crude oil production. In 2017, Iran was producing approximately 3.8 mb/d – today, its production is down to approximately 2.1 mb/d. Moreover, the continued political and economic turmoil in Venezuela has resulted in a material drop in its crude oil production. Back in 2017, Venezuela was producing approximately 1.9 mb/d – today, it is producing 685,000 b/d.

In view of these facts, the OPEC+ group has a challenging meeting ahead of them. Should members take no action and opt to review both the agreement and the market at the end of Q1 2020 (the expiration of the existing agreement), markets will undoubtedly react negatively. On the other hand, if the group announces deeper cuts and an extension of the deal, markets most likely would initially react positively. However, soon after the news, questions would quickly arise as to where these additional cuts were going to originate and what was the likelihood that they actually materialize. Presently, Saudi Arabia is bearing the bulk of the existing OPEC+ agreement cuts. It is uncertain whether other OPEC+ members are prepared to reduce their existing crude oil production levels prospectively.

We will be monitoring the upcoming meeting and prices closely. We expect energy markets to experience heightened volatility as rumors and delegate comments are digested by the market.


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OPEC + Meeting Preview