No doubt the most pressing topic of conversation among oil ministers at OPEC’s meeting on December 6 in Vienna, Austria, will be the sudden drop in oil prices during October and November. After sliding nearly 8% lower last week, oil prices continued their downward cascade on Tuesday.
Brent 300 Minute Chart
By midday, WTI had dropped by 7% and Brent by almost 8%. Both benchmarks have lost nearly all of the gains made during the year. Without doubt, not a single OPEC or non-OPEC partner country is happy about the lower revenue.
On the other hand, the sudden drop in prices provides new leverage to those OPEC leaders who have expressed a desire to cut production in recent weeks. Saudi Arabia, for example, can now point to the much depressed prices as a strong argument for why other OPEC countries should agree to curb oil production and abide by those cuts. The precipitous price declines can only help Saudi Arabia argue that production cuts are necessary to stave off the possibility of disastrously lower prices in the near future.
As usual, Iraq may be hard to sell on production cuts, but it seems as if Russia may already be on board. Russian energy minister Alexander Novak said he, along with Russian companies, is considering supporting production cuts. This decision will likely be assisted by the fact that Russian production typically decreases during the cold winter months.
Saudi Arabia had already floated a potential OPEC decrease of about 1 million barrels per day. OPEC+ would potentially contribute another cut of 400,000 barrel per day. In the grand scheme of global oil markets, this is not very much, but it may trigger a rise in market prices. On the other hand, if this potential cut is hyped too soon, ahead of the December 6 meeting, its impact could be muted.
The other issue hanging over the biannual meeting is the rhetoric that has been coming from American President Donald Trump since the OPEC’s last meeting in June. He has been pushing the cartel to increase production in order to lower prices.
Prices are now lower, but Trump hasn’t publicly changed his tune. Traders are focusing on whether President Trump comments on the OPEC and OPEC+ meeting in Vienna and whether his remarks will overpower any OPEC decisions.