OPEC’s meeting will be vital

In his video comment two weeks ago, my colleague Edwin Lampert spoke about the oil price and mentioned meetings taking place in Vienna this week which many see as crucial in preventing the oil price falling to the US$30-40 a barrel range. On Thursday – May 25th – ministers from OPEC member countries will meet in the morning ahead of an afternoon gathering that will include non-OPEC oil exporters.

When Edwin recorded his remarks, the price was US$49 a barrel and he quoted a consultant who predicted it would reach US$52 by the end of the year.

I am recording this on Monday 22 May and OPEC’s website is now quoting a price of US$50.87 a barrel, so it is tempting to say that the price is already more than half way towards that prediction, so what has OPEC got to worry about?

But that price factors in the market’s expectations of what will emerge from this week’s discussion. Both Russia and more importantly Saudi Arabia have said they want to see existing production cuts extended as OPEC responds to high inventories and growing alternatives to traditional energy sources. The market seems to think this is a foregone conclusion.

I think they are right but equally interesting, I suggest, is OPEC’s long term strategy. Saudi Arabia’s deputy crown prince Mohammed bin Salman – who President Trump met just a few days ago – has a vision to diversify the kingdom’s economy away from its dependence on oil. If he succeeds – and, as I say, this is long term planning – then down the line the Saudis may take a softer line on price support, with all the implications that will have for output.

This time next week we will have had time to digest OPEC’s discussions and decisions and should have a clearer idea where the market is heading.