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Friday's OPEC Meeting Will Set The Tone For Oil Production In 2019

By Ellen R. Wald, Ph.D.CommoditiesApr 18, 2018 05:40AM ET
www.investing.com/analysis/opec-to-set-the-tone-for-oil-production-in-2019-200306401
Friday's OPEC Meeting Will Set The Tone For Oil Production In 2019
By Ellen R. Wald, Ph.D.   |  Apr 18, 2018 05:40AM ET
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This coming Friday, April 20, about 20 OPEC and non-OPEC oil ministers will meet in Jeddah, Saudi Arabia to discuss their oil production cut deal. The Joint Ministerial Monitoring Committee (JMMC) will make a recommendation to OPEC about whether or not the production cut deal should be extended into 2019. The meeting will provide substantial guidance on how OPEC and its partners will proceed at their June 2018 meeting in Vienna.

Many bank analysts are declaring the oil glut largely resolved. This, they say, is evidenced by the fact that geopolitical tensions in the Middle East pushed oil prices up last week. Similar tensions last summer did not result in nearly as much of a jump in oil prices because global oil stocks were higher. The IEA agreed, saying that its data on global oil stocks supports the conclusion that OPEC and its partners have met their goal.

From OPEC’s perspective, outsider input can be helpful, but OPEC’s own data, forecasts and goals are what really count. Ultimately, Saudi Arabia, OPEC’s most powerful member, will likely set the policy.

Saudi Arabia has led OPEC in reducing oil production voluntarily—an average of 574,000 barrels per day—according to S&P Global Platts. The question is whether Saudi Arabia wants to continue the production cuts or not. Recent talk from the Saudi oil minister suggests that he wants to continue the production cuts into 2019 because he does not think that investment in oil projects has returned to sufficient levels.

Russian input will matter as well. It is not clear where Russia stands on the production cuts at this point. In January 2018, when the JMMC met in Oman, Russia pushed for OPEC to discuss ending the production cuts at the end of this year. Since that time, however, the talk has shifted. Russia and Saudi Arabia are now discussing a long-term framework for cooperation and collaboration on oil and other energy matters. A long-term agreement on production cuts is unlikely, but a long-term framework for cooperation is more likely. Russia is no longer calling for an end to the production cuts.

One option OPEC and its partners may consider is keeping the production cut total requirement while relaxing the country-by-country quotas. This would allow some flexibility for countries like Azerbaijan, Kazakhstan and Iraq who have chafed at the imposed quotas and frequently overproduced.

OPEC’s success at curbing oil production has largely come at the hands of involuntary cuts from Venezuela and Angola. Angola is experiencing a decline in production as its oil fields age and produce less oil. Venezuela’s March oil production, according to S&P Global Platts, fell by 80,000 barrels per day to only 1.49 million barrels per day. Outside of the state-owned Petróleos de Venezuela (PDVSA) strike in 2002 and 2003, this is the lowest level of production for the country's oil and gas company that Platts has observed since it began measuring OPEC’s oil production. This is largely due to the financial crisis in Venezuela that will probably continue for some time. The production decline in Venezuela is likely to continue in April, particularly as PDVSA oil workers are now resigning en masse.

By relying on involuntary oil production cuts to satisfy the overall production cut requirement of 1.8 million barrel per day, OPEC and its partners could conveniently continue to meet their “goals” and maintain the framework of cooperation while also satisfying the desire for higher production from some of its more unruly participants.

Look for this week’s JMMC meeting to set the tone for OPEC’s upcoming regular ministerial gathering in Vienna on June 22. It will give us the first look at what to expect for global oil production in 2019.

Friday's OPEC Meeting Will Set The Tone For Oil Production In 2019
 

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Friday's OPEC Meeting Will Set The Tone For Oil Production In 2019

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Asif Kazi
Asif Kazi Apr 23, 2018 2:12AM ET
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Nice Analysis nowadays I am reading your book on Saudi Arabian Oil and Kingdom such a nice read hope you continue to write about the region and oil in future.
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Amit Jain
Amit Jain Apr 19, 2018 8:30AM ET
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Nice Ellen! have a good day
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Infinite Eight
Infinite Eight Apr 18, 2018 2:49PM ET
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It is called market manipulation, as simple as that. I refuse to pay that much for oil. A pity that Tesla is taking so much to deliver orders.... Wondering why is not punished by United Nations....
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Annabelle Gauthier
Annabelle Apr 18, 2018 2:45PM ET
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until US$ is not support by the FED oil will be in heaven... until Trump will wake up at .79 US$, and then this 12 months of fake news to uptrend oil will be over...
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Andy Baek
Andy Baek Apr 18, 2018 1:35PM ET
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Nice analysis. Thanks for sharing.
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Do Deikins
DoRight Apr 18, 2018 8:32AM ET
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Prices are rising too fast.  My guess, which with $5 might get you a cup of java, is that they will reduce or  eliminate the quotas by the end of the year.
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Kim Boesgaard Lauritsen
Kim Boesgaard Lauritsen Apr 18, 2018 4:56AM ET
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Thank you very much for this analysis Ellen, i hope that you are having a wonderful day, all the best from me to you. :-)
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