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What is most likely outcome of upcoming OPEC meeting?

Commentary Materials 21 June 2018 07:07 (UTC +04:00)
The upcoming meeting of OPEC to be held June 22 will certainly test the strength of the new alliance and relationships and unity within OPEC
What is most likely outcome of upcoming OPEC meeting?

Baku, Azerbaijan, June 21

By Leman Zeynalova – Trend:

The upcoming meeting of OPEC to be held June 22 will certainly test the strength of the new alliance and relationships and unity within OPEC, Spencer Welch, director of the oil markets and downstream team in the London-based IHS Markit told Trend.

"It is very hard to predict the results of the OPEC meeting. Russia and Saudi want to increase production to cover falling output from Venezuela and Iran, but others who physically can’t increase production don’t agree, because they would not benefit from this change, in fact it would hurt because crude prices would reduce," the expert believes.

He pointed out that Saudi also faces mixed internal opinion, while they are concerned to avoid the oil market overheating and hurting demand growth, at the same time they like the higher price because it provides more money for social reform and infrastructure spending and helps the Aramco IPO value.

"Most likely outcome is to leave the quotas as they are. They could try to co-ordinate an increase spread across everyone, for example everyone switches to 50 percent of the current cuts, but some would likely vote against this because they can’t increase even if they were allowed to," added Welch.

The expert noted that if output goes up, oil price will fall a little, the increase is likely to be small so oil price would likely ease towards $70 per barrel.

"Very little change, oil demand is notoriously inelastic in response to price, because there are few alternative energy sources that people can immediately switch to. Oil would need to go well above $100 per barrel to start seriously having a noticeable negative impact on demand," he added.

Earlier, OPEC and several other non-OPEC producers reached an agreement to extend the production deal for a further nine months. This would shift the expiration date of the agreement from March to the end of 2018. The agreement is on the same terms as those agreed in November last year.

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Follow the author on Twitter: @Lyaman_Zeyn

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