Price drop in the oil business

Published on: 05-Dec-2019
Category: Trading
Last updated: 13-Jan-2020

Price drop in the oil business

The OPEC members will meet in Vienna on 5 and 6 December to discuss cuts in production volumes. The decisions of the meeting will also hit consumers, as prices could rise. The Organization of Petroleum Exporting Countries (OPEC) decided on 1 January 2019 to raise world oil prices by restricting production. After the price of the North Sea Brent sunk by around 20 percent in 2018, OPEC has succeeded in raising the 2019 price by ten percent. Before the upcoming meeting, the prices fell as well. A barrel of Brent cost $ 62.78 in the morning, 22 cents less than the day before. And the American West Texas Intermediate (WTI) dropped 29 cents and cost $ 58.14 in the morning.

The decision from the beginning of the year stipulates that the 14 OPEC members and their ten allies reduce oil production by 1.2 million barrels a day. However, the agreement ends in March of next year and fears of huge overproduction are rising. The International Energy Agency has calculated that OPEC countries will produce up to 1.7 million barrels of oil per day more than needed in the first six months of next year. Thus, the high oil prices would collapse again abruptly.

A mere extension of the funding cuts is not enough to stop the price collapse. The OPEC and OPEC+ states have so far only partially observed the agreement. So Russia has exceeded the goal in eight of eleven months. Saudi Arabia has been keeping to the cuts and is now trying to convince other countries to cut production by another 400,000 barrels in the first half of next year. Much depends on Russian President Vladimir Putin. If he decides against another cut, the meeting could fail. Saudi Arabia would then have to save the 400,000 barrels a day alone.

In Saudi Arabia, efforts are currently being made to keep oil prices stable and not to flood the market with black gold. The state-owned oil company Saudi Aramco should go public in a few days. Today, the issue value of the shares was announced. 32 Rial or the equivalent of $ 8.50 should cost a share and thus the price range of originally 30 to 32 Rial was fully utilized. This is the largest IPO in history, with a volume of $ 25.6 billion.


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