OPEC Choices are Getting Harder and Harder

Oil market sentiment has turned very bearish over the last few weeks. The Brent price has fallen from highs of above $80/barrel in October to currently trading close to $60/barrel, global economic prospects have become highly uncertain, Saudi Arabia’s production is at record level of above 11.1 mb/d in November, Russia and other OPEC+ members that could increase production are producing at or close to maximum capacity, the range of estimates of Iranian losses remain very wide, OECD liquids stocks have returned to above their 5-year average, net-length financial positioning has fallen sharply, US shale output keeps surprising on the upside, and President Trump’s tweets about OPEC and oil prices have become a regular occurrence. Thus, when OPEC+ members meet next in December, they find themselves in a very different environment than the June 2018 meeting when the market’s main concern at the time was whether Saudi Arabia has enough spare capacity to put a cap on the oil price. In contrast, in the forthcoming OPEC meeting, the market concern is whether OPEC and its partners will implement deep enough cuts to reverse the recent decline in the oil price. This short presentation assesses the various choices that OPEC and its key player Saudi Arabia face.

Executive Summary

By: Bassam Fattouh , Andreas Economou

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