Forex Trading Library

OPEC Meeting & Crude Oil Reaction

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The big day for Crude Oil has finally arrived. OPEC members will hold a meeting in Vienna today to discuss the possibility to cut and/or freeze crude oil production as an attempt to stabilise the markets. However, there are many factors involved and there has been a lot of drama going on since the beginning of the year regarding this issue. Regardless, no deal has been announced so far. In today’s article we will explain why this deal is complicated, what to expect from it and how to trade the news.

Definitions

  • OPEC Meetings: OPEC meetings are usually held in Vienna and are attended by representatives from 13 oil-rich nations. They discuss a range of issues regarding energy markets and, most importantly, agree on how much oil they will produce. The meetings are closed to the press but officials usually talk with reporters throughout the day, and a formal statement covering policy shifts and meeting objectives is released after the meetings have concluded
  • Algeria Accord: Some of the world’s biggest oil producers have agreed to cut production for the first time in eight years, after more than four hours of talks in Algeria in September. According to ministers, OPEC committed itself to reducing output to between 32.5m barrels a day and 33m b/d.

Why Is This Important?

OPEC nations represent around 40% of the world’s oil supply and are unified in their oil production levels. With so much control over oil’s supply-side, shifts in their production levels can have a significant impact on oil prices.

Today’s decision is very crucial as crude oil prices are off their highs again and lost around 7% this week. This is primarily because there has been no agreement yet. In both cases, whether if they announce a deal or no, the market impact will be wild.

Scenarios

No Deal: Despite the fact that most OPEC members have agreed in Algeria to cut production, some of the members have taken a step back like Iran, Russia and Iraq, saying that they are supporting a production freeze but not a production cut. Each of them explained their opinion. However, Saudi Arabia and the majority of the members are saying that the deal should be accepted by everyone. So far, this is far from being real. Yesterday, there were many remarks by oil ministers upon their arrival to Vienna. Iran said they will not cut production. In return, Saudi Arabia said that it is ready to reject the deal if Iran refuses to participate. If this continues and OPEC fails to reach an agreement, Crude Oil will most likely be under pressure for weeks and this year’s lows would be a possibility.

Deal: A deal is possible in today’s meeting. However, since the beginning of the year until today, OPEC statements have been almost the same, promising the world that they will reach an agreement soon. However, nothing happened. This is why we are giving a small chance for an agreement today; the remarks are the same and the issues remains the same. Moreover, even if they reach a deal, we believe that they will not publish the full agreement in this meeting. They might delay it again until their next meeting.

Why Did Crude Recover? Why Would It Crash?

Since the beginning of the year until today, Crude Oil has recovered sharply on the back of OPEC members’ remarks, promising that negotiations are still on going and that they will reach a deal at some point. However, it’s the end of the year and there is no deal. Therefore, traders need to be very careful regarding the outcomes today. Any lack of information by OPEC would lead to a sharp decline in the coming hours. The market needs to see actions and not just talks and remarks at this point.

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