The Strategist

OPEC is going to bring clarity to the market

01/15/2019 - 11:50

OPEC will bring clarity to the market. Already this week, data on levels of reduction will be announced, and traders will receive clear guidelines.

Tony Hisgett
Tony Hisgett
This week, the OPEC Secretariat plans to publish data on the levels of production cuts by OPEC + countries as part of the decision taken at the meeting on December 7 in Vienna. Earlier it was planned to disclose these data on December 21.

Publication of data on the volume of production cuts by country will allow overcoming "market skepticism in relation to the December decision." After the decision of OPEC + to reduce production, Brent continued to fall in price and fell by more than $ 10 to $ 49.3 per barrel. Then the recovery began, which coincided with the growth of US stock indexes and reports of trade negotiations between China and the United States. Oil futures have added about 20% from the lows.

According to more accurate calculations, the production of OPEC + countries in the first half of 2019 as a whole should be reduced by 1.195 million barrels per day to 43.874 million barrels. At the same time, at OPEC it should decrease by 812 thousand barrels to 25.937 million barrels, for non-OPEC countries - by 383 thousand to 17.937 million barrels per day.

Saudi Arabian production, according to these calculations, will decrease by 322 thousand to 10.31 million barrels per day. At the same time, the kingdom itself notified OPEC that it would reduce production in January to 10.2 million barrels per day.

In percentage terms, the actual reduction in production of OPEC countries should be 3.02%, taking into account the exceptions made for Iran, Libya and Venezuela, rather than 2.5%, as reported immediately after the meeting. Non-OPEC countries, as planned earlier, will cut production by 2%.

Earlier it was reported that oil prices are largely dependent on the general market conditions and, in particular, on the actions of the Federal Reserve System. For example, the current growth stalled immediately after a portion of the statistics on inflation in the United States arrived on the markets. Core CPI - inflation minus volatile energy and food prices - was above 2%, suggesting that the Fed could continue its tough policy.

Against this background, both stock assets and oil prices have somewhat adjusted, however, a new wave of collapse is not being discussed yet.

OPEC + plans to hold a ministerial meeting on April 17-18, 2019 in Vienna, OPEC Secretary General Mohammed Barkindo told reporters.

As previously reported, the terms of the OPEC + deal to reduce production by 1.2 million barrels per day can be updated. The next meeting of the OPEC + Ministerial Monitoring Committee will be held in Baku on March 17-18, Bloomberg reports.

OPEC will also discuss a draft indefinite charter on cooperation at the technical meeting on February 7–8; consultations with countries outside OPEC will continue from February 18 to 19.

The OPEC + countries adopted the decision to cut production by 1.2 million barrels per day at a meeting in Vienna on December 7. It will be valid for six months. However, given the rapidly changing external factors, it was decided to evaluate the terms of the transaction at an extraordinary meeting in April.