Skip to content
  • CONTACT US
Verocy_white
  • CONSULTANCY
    • INSIGHT & ANALYSIS

      We, provide in-depth knowledge to support your development and investment decisions, help understand the impact and drivers of new visions and various versions of the future and how they affect your business or assets, and develop and execute unique approaches that are effective in a multi-stakeholder environment.

      INSIGHT & REPORTS

      INSIGHT & ANALYSIS

      verocy-foresight-eye2

      FORESIGHT & ADVISORY

      development

      TRANSFORM & DEVELOP

    • FORESIGHT & ADVISORY
    • TRANSFORM & DEVELOP
  • MARKETS
    • ENERGY

      Our experts and affiliates have unique knowledge and experience in these dominant sectors.

      ENERGY TRANSITION & CLIMATE CHANGE

      ENERGY

      INFRASTRUCTURE

      FINANCE

      HIGH TECH

      SECURITY

      COMMODITIES

    • INFRASTRUCTURE
    • FINANCE
    • HIGH TECH
    • SECURITY
    • COMMODITIES
  • REGIONS
    • MIDDLE EAST & NORTH AFRICA

      We focus on the Middle East and North Africa region with emphasis on countries that are a dominant factor in regional dynamics.

      MIDDLE EAST &
      NORTH AFRICA

      SAUDI ARABIA

      EGYPT

      UNITED ARAB
      EMIRATES

      BAHRAIN

      TURKEY

    • SAUDI ARABIA
    • EGYPT
    • UNITED ARAB EMIRATES
    • BAHRAIN
    • TURKEY
  • EXPERTS
Menu Close

The OPEC Meeting Could Send Oil Prices Crashing Below $10

Insight & News
April 3, 2020
The current optimism of analysts and the media that an end to the ongoing OPEC+ oil price spat is near is entirely unjustified.

The ongoing oil market volatility, the battle between leading producers for market share, the logistical impossibility of enforcing U.S. production cuts, and the continued demand destruction caused by COVID-19 are not issues that can be solved by an OPEC meeting. Immediately after Trump’s latest OPEC twitter offensive, Saudi Arabia and Russia came out with critical statements about the impact and influence of the US president on the matter. While Putin and Mohammed bin Salman are reluctant to bash Trump, the real power when it comes to the oil market does not lie with the U.S. President. The tweet by Trump claiming that MBS and Putin would agree to a 10+ million bpd production cut shows not only his overestimation of his own power over the two countries, but also shows a lack of knowledge about the underlying market fundamentals and the current demand destruction worldwide.  As former US president George W. Bush stated during his election campaign, which did not end well as we know, “it’s the economy stupid” that matters in the end. Trump’s tweets and general approach to this matter suggests he and his administration are out of touch with reality. Even if a Saudi-Russian combination would cut 10 million bpd, the oil price reaction would be minimal and very short-lived. At present, leading oil market experts such as Vitol, Trafigura and Goldman Sachs are warning of a total demand destruction of 20 million bpd or more. When looking at the cuts in global refinery runs, we have already hit levels of -17 million bpd or more. Downstream companies are cutting back on all production as demand from industry and consumers worldwide collapses. Lockdowns in more than half the world are having a major impact, hurting demand for oil, gas and other kinds of energy. Cutting 10+ million bpd of production is not a real solution and it could even cause markets to react negatively. When production cuts fail to send oil prices up, the fear in the market could hit historical highs, causing oil prices to fall to levels below $10 per barrel in the coming weeks.

The upcoming “OPEC+ and Friends” meeting is going to be a very tricky one. There is the very real possibility of the meeting failing as the targets that have been set are totally unclear. Saudi Arabia, probably supported by Abu Dhabi, called an emergency meeting, not only of OPEC+ members but of all oil-producing nations. That means that, at least according to Western media, the US is invited and will likely attend. In inviting the U.S., it seems that Saudi Arabia has called Trump’s bluff because by attending the meeting Washington will be implicitly stating that a possible production cut agreement would include the US. When looking at the US upstream oil and gas sector there is one thing you can state without any analysis….Washington and US oil and gas operators are not on the same page. Suggestions of Washington being able to control or even force US oil to cut production, even via legislation, are ludicrous and would end in a mammoth legal battle. Even if only Texas representatives attend, oil companies will be unlikely to comply, it is simply not in the US oil and gas DNA to work together on an international level. Free market economics is a cornerstone of U.S. society and business.

The second major threat at the Monday meeting is that Saudi Arabia not appear to be at all convinced that it needs to change its current tactics. Its targeted goals of regaining market share, forcing Russia to come to the table and bringing non-OPEC producers such as U.S. shale to their knees are working well. Several Saudi officials have stated that they are willing to discuss a new agreement but only under the conditions that potential production cuts will be on the shoulders of all, not only Saudi Arabia, Russia, and UAE. In this light - Trump’s demand for a more than 10 million bpd cut from Russia and Saudi Arabia is unrealistic, to say the least.

Russia’s position has, until now, remained unclear. While Putin is still acting as though he has nothing to worry about, Russian oligarchs and the Russian leader are happy to debate any options that are on the table. For Russia, the current position taken by Trump is being seen as an opportunity to get some gifts from the U.S. very soon. Russia might consider cooperation with the U.S. if Washington agrees to bring an end to Russian sanctions. But that is not as important to Moscow as a strong relationship with Riyadh and OPEC going forward. Future opportunities with Saudi Arabia are more attractive to Putin than a positive relationship with a President that may not be re-elected this year.

While all eyes will be on Washington, Riyadh, and Moscow in the coming day, there is a fourth group that is going to be vital at Monday’s meeting. In order to reach a 10 million bpd cut, OPEC will have to convince all other oil-producing countries to contribute. At present, convincing such a large list of independent nations to join these efforts seems unrealistic. Countries such as Libya, Iran, Iraq, Brazil, and Canada, are unlikely to agree at present to cut production. This is yet another reason that the OPEC meeting will likely fail on Monday.

The real fear for markets at the moment should be sentiment and expectation. After Trump’s tweet cited a 10-15 million barrel per day cut, oil prices have soared and anything less than that will be seen as a failure. After what is looking set to be a fairly quiet weekend for energy markets, a Monday failure with plenty of media attention is likely to drive markets into a frenzy. This fear, combined with continued demand destruction could serve as a serious problem for oil markets next week.

With this in mind, the rational short-term approach of OPEC+ should be, especially for Riyadh and Moscow, to not move at all. Don’t increase production, stand on the quay and watch the US shale and non-OPEC VLCCs fill oil storage to the brim. If OPEC+ cuts without the assistance of other nations it will lose future leverage and markets may crash anyway.  By doing nothing, Saudi Arabia and Russia can maintain the illusion that a production cut from OPEC+ would save markets.

By VEROCY for Oilprice.com

Verocy latest news station

Get all latest content delivered to your email. Updates and news about all categories will send to you.
Email is required Email is not valid
Thanks for your subscription.
Failed to subscribe, please contact admin.

Recent articles

  • Ai-Neural Network Indicators show OPEC meeting will not bring relief to oil market
    Ai-Neural Network Indicators show OPEC meeting will not bring relief to oil market
    22 November 2020/
    0 Comments
  • Predicting Post Trump Corona Impact on Commodity Prices and Risks!
    Predicting Post Trump Corona Impact on Commodity Prices and Risks!
    10 November 2020/
    0 Comments
  • SWFs: Never waste a good crisis
    SWFs: Never waste a good crisis
    2 July 2020/
    0 Comments
  • Shell Impairments Support Bearish Market
    Shell Impairments Support Bearish Market
    30 June 2020/
    0 Comments
  • Oil Market Optimism Is Entirely Misplaced
    Oil Market Optimism Is Entirely Misplaced
    25 June 2020/
    0 Comments

Latest Opinions

  • Is the Bull Ready to Run for Oil Prices? 5 May 2020
  • Les compagnies américaines resserrent les vannes 2 May 2020
  • Can cannabis legalization rescue Lebanon’s ailing economy? 27 April 2020
  • Oil Prices Likely To Spike But War Is Unlikely: Analysts 4 January 2020
  • How the Gulf can win the US-China geopolitics game 2 November 2019

FAST NAVIGATION

Don’t forget the other sections

Search
  • CONSULTANCY
    • INSIGHT & ANALYSIS
    • FORESIGHT & ADVISORY
    • TRANSFORM & DEVELOP
  • MARKETS
    • ENERGY
    • INFRASTRUCTURE
    • FINANCE
    • HIGH TECH
    • SECURITY
    • COMMODITIES
  • REGIONS
    • MIDDLE EAST & NORTH AFRICA
    • SAUDI ARABIA
    • EGYPT
    • UNITED ARAB EMIRATES
    • BAHRAIN
    • TURKEY
  • EXPERTS

MORE INFO OR NEED HELP?

Please leave a short message or contact us.

CONTACT INFO

Postal mail:

VEROCY HQ,
Elshardt 7
NL-7041 SW, ‘s-Heerenberg
The Netherlands

Telephone:

+31 (0)6 5396 1864
+31 (0)6 5381 9265

Email & Web:

enquiries@verocy.com
www.verocy.com

FOLLOW US

Linkedin Twitter Facebook

TERMS OF SERVICE & PRIVACY

Privacy Policy
Cookie Policy

Copyright© VEROCY 2022

Close Menu
OIL PRICE PREDICTIONIndicators and Warnings of Potential Impact!
First Name
Last Name
Your email
Company Name
Phone Number

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

OIL PRICE PREDICTIONIndicators and Warnings of Potential Impact!
First Name
Last Name
Your email
Company Name
Phone Number

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Regional & Country PredictionsWe provide Indicators and Warnings of Potential Impact!

We will contact you to show you 

First Name
Last Name
Your email
Company Name
Phone Number
Comments?

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

COMMODITY TRADING
FDI & Emerging Market PredictionsWe provide Indicators and Warnings of Potential Impact!
First Name
Last Name
Your email
Company Name
Phone Number
Comments?

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

Commodity Price & Risk PredictionWe provide Indicators and Warnings of Potential Impact!
First Name
Last Name
Your email
Company Name
Phone Number
Comments?

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.