Cuts need to get deeper

It has become a very common exercise for OPEC and its non-member allies to join their heads for production cut to avoid price crash in oil prices. The OPEC+ group including Russia has been curtailing crude oil output for over two years now to counter growing American supply.

The latest one is taking place today in Vienna and OPEC+ is expected to make a production decision not only to prop up current crude oil prices, but also avert a likely supply glut coming all the way from America, Brazil, Norway etc. next year. Only that the production curb is likely to get deeper from the existing 1.2 million barrels per day by another 400,000 plus barrels per day.

Crude oil prices haven’t been able to pick up pace post the attacks on Saudi Arabia. Rising recently on the expectation of deeper contraction and extension of the production cut deal, oil prices have remained bearish in general and dipped further down as the latest statement from US President Donald Trump plunged hopes for an early resolution of the US-Sino trade war.

More than just thee extension, a new deal will be a streak of hope for the crude oil prices amid fears of oversupply come 2020. Will Saudi Arabia lead the fresh cut is not likely as the Kingdom is already pumping significantly below the official levels. The focus might be on forcing the non-compilers like Russia, Iraq, Nigeria – countries that have been ignoring to cut production throughout the year. Saudi Arabia has actually threatened to increase production if non-compliance continues.

What happens if OPEC+ can’t agree on “deeper” cuts? Surely this is something that Saudi Arabia and others do not want to think about right now. Analysts around world are predicting prices as low as $40 in 2020 with expected increase in oil supplies and existing production levels!