Friday marked the 10th consecutive day crude oil prices fell. But cheaper crude oil means lower profit for oil producers, and thus countries such as Saudi Arabia are now mulling a cut in production — which would go against their earlier promise of increasing production.
Crude oil slides under $70 for first time since April
The fresh plunge comes as representatives from Opec and non-cartel members prepare to meet Sunday in Abu Dhabi to discuss a possible output cut to protect their revenues amid slumping prices. Since hitting four-year highs last month, crude prices have slumped on rising production, Chinese economic growth fears, and easing concerns about the impact of sanctions on Iran.
The worry: The Organization of the Petroleum Exporting Countries (Opec), which includes Saudi Arabia and Iraq and Iran, and other non-Opec oil producers such as Russia met in Abu Dhabi on Sunday to discuss oil cuts. They worry that a continued fall in crude oil price will cause a 2014-16 style oil crash when oil price dropped 70%, in large part due to the US shale oil boom.
The crash deeply impacted oil producers, with Saudi Arabia's fiscal deficit rising to 16% of its GDP — meaning lesser money for infrastructure, defence, and its social projects such as free medicine for citizens and so on. Before the latest price drop, Saudi was targeting a deficit of 7.3% its GDP.
Turn about: Opec members and its 10 allies are mainly worried about the increasing US production (11.4 million barrels a day). But they can't force the US to lower production so they are considering reversing their pledge to increase production.
Since May, Opec production has risen 820,000 barrels a day, and Russia's output increased from 440,000 barrels a day in May to 11.4 million b/d in October. The oil producers could agree (though Russia doesn't want to) to reduce the output to somewhere between the May and October figure (say a cut of up to 1 million) — cutting all the way to May level may attract the wrath of Donald Trump.
When? Sunday's discussion was not an official Opec meet, and hence was more of a brainstorming. But the next official Opec meet is on December 6, and the narrative from Sunday would drive the agenda then. That could mean oil price could once again be the talk of the town as India heads to the general elections.
from Times of India https://ift.tt/2PreETF
