2022-12-20 • Updated
OPEC+ is just about to meet – the series of sessions starts later today. Iran will be there, Russia will be there – that is, apart from the primary cartel member countries such as Saudi Arabia. As they agreed before, they’ll be meeting discuss the plans of future supply. Specifically, in view of the recovering global oil demand, the question is how much oil supply needs to be restored.
Saudi Arabia is on the side of a cautious approach, with a 500,000 bpd suggested increase for the coming months. However, many other countries – primarily, Russia – hold a stronger supply position for a number of reasons from not letting the US shale producers take over the niche to a blunt desire to extract more oil profits. This last view suggests increasing the supply by 1.5mln bpd.
First of all, keep in mind that you’re trading emotions here. That means, you trade short-term. In the long-term, supply and demand will meet somewhere and stabilize – that’s the interest of all sides. So, we are speaking only about the short-term.
Meaning, there will be investors and traders out there, watching the OPEC+ meeting, and if OPEC+ decides to make a little supply increase, they may think, “Oh, so they’re not going to pump oil into the market – the price will rise then”, and the price will eventually rise because most of them think it will and will behave accordingly.
Otherwise, if the OPEC+ meeting ends with the maximum expected output increase, observers may think, ‘Wow, the market is about to be flooded with oil, the price will plunge – time to see’. So, they’ll start selling because they think everyone else already does that. Eventually, the price will drop.
The price has already made a considerable drop - it dipped below $60 dropping out of the recent uptrend. There is a high likelihood that this local low will press on the meeting members to favor the cautious supply increase approach over aggressive stance.
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