OPEC to meet on Friday to balance oil markets

yinka ogunlami

December 4, 2015 4:13 PM

In the light of a news that OPEC is going to propose a deal to balance oil markets, the crude oil prices raised a bit after registering a new low on Wednesday, December 2, 2015.

Constant decline of oil prices in recent times

In the light of a news that OPEC (Organization of Petroleum Exporting Countries) is going to propose a deal to balance oil markets, the crude oil prices raised a bit after registering a new low on Wednesday, December 2, 2015.

The prices of crude oil have been on a constant decline since June 2014 and even halved during recent times. At the OPEC meeting to be held on Friday at Vienna, a positive decision is expected relating to the production cuts and hence the price rise. US crude prices were hovering just above $40 in early Asian trading on Thursday, after dropping more than 4 percent a day earlier.

Focus is now on the Organization of the Petroleum Exporting Countries meeting in Vienna Friday. Analysts say the 12 members appear to be divided, with Saudi Arabia and its Gulf partners at odds with others pushing for a cut in output in a bid to perk up prices. Moreover, the Organization of the Petroleum Exporting Countries (OPEC) is widely expected to keep its high output unchanged at a meeting in Vienna this Friday.

“Without the Gulf group, there can be no effective OPEC agreement,” IHS Energy said in a report ahead of Friday’s meeting.

"Reports were the majority of OPEC members support a production cut, except for the dominant supplier Saudi Arabia," ANZ said.

Saudi Arabia has been producing excess amount of crude oil and pumping it into the market which resulted in constant decline of oil prices. Saudi officials have said that if they cut production and prices go up, they will lose market share and merely benefit their competitors. They say they are willing to see oil prices go much lower. But the scenario is different.

If prices remain low for a year or longer, the newly crowned King Salman may find it difficult to persuade other OPEC members to keep steady against the financial strains. The International Monetary Fund estimates that the revenues of Saudi Arabia and its Persian Gulf allies will slip by $300 billion this year.

Hence Saudi Arabia too will be willing to reduce the production on a collective basis. However, we have to wait till Friday and let the matter disclose itself.

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