Crude Oil: prices have fallen more than 6 percent since Thursday on news that OPEC could increase production. The next steps, however, are unclear. Is a deeper price correction in order? Or has the steam been let out of the market, pushing prices down to sustainable levels? Obviously, OPEC and Russia hold all the cards for the next few weeks.
OPEC decision demonstrates its clout. Despite all the ink spilled on the primacy of U.S. shale, the fact that oil prices crashed after news surfaced that OPEC and Russia are discussing adding some supply back onto the market demonstrates the cartel’s ongoing influence over global oil markets. U.S. shale is adding enormous new volumes of supply, but shale companies have nowhere near the power that OPEC has to force sudden and sharp price changes on the market. Oil prices fell more than 6 percent over two days since the news broke that OPEC and Russia could add as much as 800,000 bpd back onto the market in the second half of this year.
While Saudi Arabia and Russia have reportedly agreed to increase production, even as they continue to negotiate over the specifics, reports suggest that there isn’t agreement from the rest of the OPEC/non-OPEC to go along. In fact, several producers are opposed to adding some production back into the market. “It might be a contentious meeting,” Ed Morse, head of commodities research at Citigroup Inc., told Bloomberg. Some opposition is not surprising since higher production levels would presumably come from Saudi Arabia and Russia, at the expense of other countries who are already producing as much as they possibly can. |
