The Organization of Petroleum Exporting Countries or OPEC meet this week on November 30 in Vienna, Austria for the 173rd OPEC meeting. The event will see Russia, the largest non-OPEC nation joining hands with Saudi Arabia in deciding about extending the production cuts.
OPEC first agreed to curbing production in 2016, marking the first oil cut in nearly eight years. The deal was designed to curb the building oil inventories as the previous decision to open the supplies saw crude oil prices falling sharply.
The initial move also saw Russia in cutting its own output.
Crude oil prices have stabilized since the first decision in 2016. Ahead of this week’s meeting, WTI crude oil futures were seen closing last week near the $60 a barrel mark. On Friday, Crude oil prices settled at $58.94, extending the gains for four consecutive days.
On Wednesday, the OPEC member nations and Russia will decide whether to extend the production cuts or not. According to the previous meeting, the oil production cut is expected to expire in March 2018.
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As of the latest news reports, Russian and its OPEC partners are said to have agreed on a framework that will see oil cuts being extended. However, officials note that there are various options still available. Initially, Russia was hesitant to extend production cuts at the November meeting considering that the production cuts did not expire until end of March.
However, that seemed to have changed with Russia willing to agree to the cuts but with some additional caveats. Russia’s energy minister, Alexander Novak was cited by news sources as saying that the goal for re-balancing the oil markets wasn’t met this year and as a result members were keen on reaching the final goals. “Russia also supports these proposals” Novak said in an interview last Friday.
Until now, production cuts were levied on various OPEC member nations. However, if reports are to be believed, the new deal could see some changes. These include linking the production cuts to the supply and demand balance on the global markets. Other options were said to include making no changes at this week’s meeting but to reconsider the deal next year before end of March.
The fact that the outcome of this week’s OPEC meeting is unclear shows that the risks are equally balanced. There is a possibility for OPEC to announce further extension to the production cuts by another six months from March.
Oil prices have rallied strongly in anticipation of this week’s OPEC meeting. However, the risks are building up in the event of a no decision.
Oil prices settled close to the $60 handle last week as price closed above the resistance level of $57.87. However, the rally to this level saw a sharp move after the minor resistance level near $52.25 – $51.82 was breached.
WTI Crude Oil Technical Chart
There has been no pullback to this level following the rally to the $60 handle. Although crude oil prices have closed above the resistance level, there is scope for price to post a strong correction.
Any declines, could see crude oil prices falling back towards the $52.25 – $51.82 level where support could now be established. This scenario is likely to play out in the event that the markets are not convinced that OPEC is full behind the production cuts.
In the event that there is a decision to postpone the announcement of further production cuts to a later date, this could send oil prices plunging back to close to the $50 level.