OPEC meets in Vienna today. Although some member countries (mainly Venezuela and Iran) have been agitating for a production cut, the consensus remains that OPEC won’t authorise one.
Oil has fallen to a 5-month low, below $105/barrel, as demand growth slows, robust production continues, and the dollar strengthens. These factors are countering fears caused by Hurricane Ike and the possibility of a supply cut.
Sauid Arabia, which accounts for a third of OPEC’s output, appears to be in the majority, claiming the oil market fundamentals are “fairly well balanced.” Iran provides the counter-argument, with their oil minister claiming “the market is oversupplied.”
While expectations for a supply cut are slim (but real), that doesn’t mean the meeting will be uneventful. OPEC will almost definitely decide (but not say) at what price the organisation will authorise a cut. Saudi Arabia has mentioned $80 as a floor, while Iran and Venezuela don’t want to let the price drop below $100.
Credit Suisse believes OPEC will cut oil production when the price drops below $100. Meanwhile, a price near the previous record-high (~$150) is probably where OPEC wants to put a ceiling.
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