On Friday, the 5th of June, the members of OPEC will meet for their semi-annual meeting. So what can investors expect?It seems that the consensus is that when the members of OPEC (Organization of the Exporting Countries) meet, they are likely to leave the ceiling for oil production the same.
That is, the oil-producing cartel is likely to maintain the output of 30 million barrels per day which has been in place since 2012. Despite this output ceiling, reports have shown that OPEC members have in fact been producing more oil, over a million barrels a day, above the agreed upon level.
Until now, OPEC has been determined to maintain its market share and as a result, in the last meeting which took place in November, the cartel kept its production target unchanged.
This came at a time when global oil prices (LCON5, -2.68% CLN5, -2.70%) declined extensively due to the supply glut.
Analysts are concerned that if OPEC continues to maintain its output levels, this will prompt the market to have a glut in oil supplies for years to come.
Interestingly, analysts at Barclays have stated that OPEC will not be able to maintain its current market share and production levels while also expecting higher oil revenues.
To put this all into perspective, Barclays issued a document called, “Top 10 things OPEC won’t do this week”. This document included ten different scenarios of what might or might not take place at the meeting on Friday.
Some of these point included reducing OPEC’s quota which is highly unlikely. Instead, Barclays has said that an increase is also possible.
With regards to Iran, it seems investors have taken the ‘wait-and-see’ approach as it seems there is a lot of uncertainty which is linked to the current deal that is on the table with Iran and the 6 world powers.
Another result of the meeting could be to target the U.S. shale oil. Saudi Arabia however has said that they are not against anyone but that while they want to maintain their market share, they also strongly support market stability which requires a firm balance between supply and demand.
An added outcome of today’s meeting could be that non-OPEC suppliers will agree to cut their output yet Barclays has stated that this is highly unlikely. Added to this, it is vital that OPEC maintains the perception that the market is determining the price level and so they will need to provide guidance or price targets.
The bottom line is, according to analysts at Barclays, if OPEC takes no action today, oil prices are likely to be negatively impacted.
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