Analysts: OPEC's Strategy is Working

The Organization of Oil Producing Countries (OPEC) logo - Long version - Year 2016Two years ago, Saudi Arabia and the rest of the OPEC members flattened the market for oil when they decided not to cut production targets amidst increasing global supply.

The move resulted in the price of a barrel of oil falling from over $100 to less than $30 over the course of just a few months. The strategy was meant to make it unprofitable for US drillers to continue to operate, which would eventually result in diminished supply throughout the world.

The strategy, while excessively painful for OPEC member nations such as Venezuela and Nigeria, has now started to pay dividends. Significant production declines are being noticed, which has resulted in the price of oil increasing by roughly 80% since its early 2016 low.


OPEC has had some very heated meetings over the past year or so, as some of the organization's member nations are under very significant economic stress.

Saudi Arabia, however, is guiding the way when it comes to OPEC's policy, which is why hardly anybody expects a deviation from their current strategy when the organization meets in Vienna on June 2nd.

According to 27 analysts that were surveyed by Bloomberg, just one expects an output deal on June 2nd. The market certainly isn't expecting such a move, as oil has continued to march past the $50 mark in recent days.

While countries like Nigeria and Venezuela would certainly welcome a deal (especially Venezuela, as the country is going through a tremendous economic upheaval right now), there is practically no chance that they would convince the rest of the OPEC nations to change course. The plan to eliminate supply from the global market is working, and the price of oil continues to trend higher as a result.


In short - regardless of what happens on June 2nd, the price of oil is likely to continue higher.

Source: - Oil Heads for Longest Run of Gains in 5 Years Before OPEC Meets

Filed under: General Knowledge

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