We already knewOPEC had pulled forward a December meeting in to November following market turmoil. But with NYMEX futures below $70, the oil producers’ group has now pulled the November meeting to October 24th, a week today.
It must now be clear that a cut is forthcoming, but how large? Qatar’s Oil Minister Abdullah al-Attiyah told Al Jazeera yesterday “It will be one million, or more… Prices have fallen a lot and we need to take measures.”.
One million bpd is the first significant cut since the crisis began. To put that in context Saudia Arabia reduced its September output to 9.55 million bpd from 9.65 million bpd in August.
These cuts are supposed to stop the price hemorrhage in the face of reduced demand. If oil falls below $60, it starts to “Impact the Saudis’ budget,” according to Lawrence Eagles of JP Morgan. Oil Energy Money called $73 too low four weeks ago and many analysts are calling a bottom of $80. OPEC President and Algerian Oil Minister Chakib Khelil said on Thursday that the “ideal” price for crude oil is between $70 and $90 a barrel.
Will next week’s production cuts push prices back up? That depends on the severity of the cuts and the overall sentiment on the economy, obviously. OEM predicts a cut of at least 1.5m barrels, anything below that would still lead to overproduction. As more information leaks out, prices will steadily increase in anticipation of the meeting. If the cut is too small they’ll fall back fast and cause further short selling. If the cut is too large, OPEC face considerable political pressure.
While the size of cuts will be hard to predict their effects will definitely shake up the markets. Expect Oil Energy Money to keep you updated.
