Deal or no deal: All eyes set on OPEC meet outcome
There has been a lot of backroom drama in the run up to the Vienna meeting, with many members lobbying to be exempt from the production cut. As of now, confusion and uncertainty persists and that is reflecting in crude prices which are down around 2 percent after the OPEC experts meeting on Monday.
Global markets are keenly awaiting the outcome of the Organisation of Petroleum Exporting Countries (OPEC) meeting in Vienna on Wednesday. Two months ago, the 14-member oil body had agreed upon a production cut between 32.5 million barrels per day (bpd) and 33 million bpd, without details on how much each member nation will reduce output.
There has been a lot of backroom drama in the run up to the Vienna meeting, with many members lobbying to be exempt from the production cut.
As of now, confusion and uncertainty persists and that is reflecting in crude prices which are down around 2 percent after the OPEC experts meeting on Monday.
Take a look at the various scenarios likely to emerge after the meeting.
> If the talks do not result in an agreement to cut output, crude prices will fall. Some experts estimate it could drop to around USD 42/barrel. Inability to agree on the production cut will undermine the credibility of OPEC as well as its ability to influence crude prices.
> If the members agree on the production cut details, it would be the first one since 2008, and this could push prices above USD 50 a barrel in a knee-jerk reaction.
And then there are other options too: OPEC might just do a paper deal rather than not doing anything at all or it could do a temporary deal for say 3-6 months. Remember, the deal has to be acceptable to all members. In September, OPEC had agreed to cut output to between 32.5bpd and 33 million bpd, but in last 2 months, production has only risen. So if OPEC keeps to that number, then crude oil prices will rally above USD50
Still, oversupply may still persist as the US is likely to add 1 lakh barrels a day by 2017 as per forecasts from the US Energy department. The US rig count has surged 50 percent from the lows. The other non-OPEC oil producers like Russia, North Sea etc have reported an increase in output.
Another factor the OPEC would consider is Donald Trump's policy on energy. This factor was not in play during the Algiers meeting when OPEC had decided on an output cut. Trump has been vocal on plans to ease regulations on energy sector and make US energy independent.
So it is a tough decision that the OPEC will have to take, balancing its members’ interests as well as market dynamics.