OPEC Meeting Delayed: Analyzing the Potential Impact on Oil Prices and Saudi Arabia's Strategic Dilemma
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Delay is no good sign
By Ipek Ozkardeskaya, Senior Analyst | Swissquote Bank
OPEC decided to delay this weekend's meeting to next week because talks between Saudi and African members apparently ran into trouble. Saudi likely sensed in this week's poor price action - 'buy the fact that Saudi will double its production cuts' action - that 1mbpd extra cut wouldn't send the oil prices higher, sustainably. Hence, Saudis need other member to put their hand in the mud, and seemingly the negotiations aren't easy.
A bit of history...
Saudi has a history of walking away from its role of 'swing producer' - a crucial role in balancing global oil markets by adjusting its production levels to stabilize prices. Back in the 1980s, Saudi Arabia has shifted its strategy and opted for a market share approach. Instead of cutting production to support oil prices, Saudi Arabia had decided to increase its output significantly, contributing to a glut in the global oil market.
Therefore, if Saudi doesn't get the support that it needs from the other producer countries after all the unilateral efforts that they put in, they will naturally be tempted to abandon the idea of doubling its supply cut, and eventually reverse it. Such a decision would lead to a sharp decline in oil prices and have a significant impact on the economies of other oil-producing nations.
The barrel of American crude sank to $73.50pb before rebounding to the $76 this morning. Brent fell below $80pb before rebounding above this level. Both in Brent and crude, the 200-DMA remains a solid resistance, as the worries of global slowdown outweigh the worries of supply restrictions, even more so as Saudis start giving signs of stress regarding their solo role in cutting production.
