Oil prices expected to drop as OPEC meeting gets postponed

OPEC, allies finally agree to deal to cut oil production

Tensions may be rising between Russia and Saudi Arabia with a scheduled OPEC meeting on Monday being postponed. Commodity investors and traders are expecting oil prices to drop this week in response.

On Friday oil prices rose by 12%, following on the heels of the previous day’s 25% gains as investors and traders were expecting a deal to be made between Saudi Arabia and Russia.

This is after U.S. President Donald Trump expressed optimism that both parties would be able to strike a deal soon.

However, a recent report from Reuters suggested that the OPEC virtual meeting would be postponed and might be moved to either April 8 or 9.

Founding partner of Again Capital’s John Kilduff told CNBC:

“It’s probably going to crater […] There was a lot of optimism priced into oil Thursday and Friday. With this new Saudi, Russia spat, it doesn’t look like it’s going to come together.”

How will oil ‘crater’?

U.S. oil rose 25% on April 2 for its best day on record and sparked another 12% on April 3 as it closed the week with a 32% surge. It broke a 5-week losing streak and recording its best weekly performance ever, back to the contract’s inception in 1983.

Helima Croft, head of global commodities research at RBC, saw two issues that are currently happening as she commented:

“After President Trump’s statement it seems rather unlikely any production commitment is forthcoming. And it looks like we might have a new diplomatic rift between Russia and the Saudis…The Saudi minister is pushing back furiously on the Russian minister’s assertion that the Saudis are targeting shale.”

OPEC proposed cutting production by 1.5 million barrels per day in an effort to combat the demand slowdown. However, Russia rejected the proposal at its March meeting ending up with no agreement.

In retaliation, Saudi Arabia slashed its oil prices in an effort to gain market share and subsequently increased its production to a record high of more than 12 million barrels per day.

Delaying tactics adding fuel to the fire

A Bloomberg report suggested that the delay came hours after Saudi Arabia made a diplomatic attack on Russian President Vladimir Putin.

This incident created a new barrier between the world’s two largest oil exporters and jeopardizing a deal to cut production.

Although Putin acknowledged the need for a deal, he also blamed Saudi Arabia for the downward spiral in prices.

The pullout by their partners from Saudi Arabia from the OPEC deal and their announcement to give discounts on oil. Putin added:

“This was apparently linked to efforts by our partners from Saudi Arabia to eliminate competitors who produce so-called shale oil […] To do that, the price needs to be below $40 a barrel. And they succeeded in that. But we don’t need that, we never set such a goal.”

Prince Abdulaziz, Saudi’s energy minister pointed a finger back at Russia, saying:

“The Russian Minister of Energy was first to declare to the media that all the participating countries are absolved of their commitments […] This led to the decision by countries to raise their production in order to offset lower prices and compensate for their loss of returns.”

This unexpected turn of events has made things more difficult for the two countries resulting in finger-pointing.

Featured image courtesy of Pixabay

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