Complex Made Simple

OPEC playing truth or dare this Friday: Here’s a kickoff preview

Unlike the entire Saudi team at the World Cup in its upcoming Uruguay matchup next Wednesday, the pressure bears down on one player alone this OPEC Friday, June 22nd in Vienna: Saudi Arabian energy minister Khalid Al-Falih.

Oil prices, trade wars, regional alliances, and countries’ fiscal calculations and economic aspirations are among the many factors that lie in the balance.

It’s a truth or dare, cat and mouse game that could end in upheaval.

Expert opinion: Oil looking oversold heading into latest OPEC meeting

The pressure is on

Al-Falih has a good record playing a big role in persuading a divided OPEC to cut oil production, convinced non-OPEC Russia to curb output, and then saw Brent crude rise nearly 75 percent to $80 a barrel.

In December 2016, OPEC and Russia, and other producers struck an agreement to remove 1.8 million barrels a day from the world market to steady prices and end a supply glut.

He also stopped the bleeding as Saudi Arabia was draining foreign reserves at the rate of $10 billion a month when oil prices were at $45 when he took over in 2016.

With Brent back to just below $80 a barrel, the kingdom is breaking even. In March, Saudi Arabia added $13 billion in hard currency.

But this week’s OPEC meeting is the toughest in years, as now the issue is exiting the 1.8 million bpd cuts while keeping prices relatively unchanged from a current $75 Brent and $65.8 WTI.

He is facing opposition from Venezuela, Iran, and Iraq on Saudi-Russian plans to plug output holes created by US sanctions on Iran and production difficulties in the South American country.

US president Trump is urging more production to ease price inflation at the pump back in the states, as the midterms approach.

Read: WTI is so much cheaper than Brent that OPEC oil tankers are stuck at sea

Decision time

OPEC is expected to agree to open its spigots, but adding more supply to the global oil market could create fresh volatility around oil prices, according to CNBC.

“Already, OPEC members do not all agree on how much oil should be returned to the market, and Russia also apparently has its own view, stating over the weekend that OPEC would consider returning 1.5 million barrels to the market for the third quarter only when demand is high,” says CNBC.

Credit Suisse analysts said in a report on Sunday, “Importantly, OPEC needs a consensus of all members to officially change its output policy, leading some to believe it may end in a ‘broken meeting.'”

“Analysts say Saudi Arabia would like to initially return just 500,000 and watch the market before adding more, while Iran and Venezuela want to keep the status quo,” adds CNBC.

OPEC has to walk a careful tightrope on oil prices because if they are too high, demand could fall off.

VIDEO: Is OPEC worried about Nov. sanctions on Iran as oil hits $100 in 2019?

Macquarie Research said an 800,000 barrel a day increase in production, which could dent prices by $2 to $4 a barrel, while $6 to $8 could be lost if 1 million barrels a day were returned instead.

OPEC is responsible for 40% of world oil supply, and Iran, third largest OPEC producer, could be down as much as 500,000 barrels a day by the end of the year.

US production could reach 11 million barrels a day in the near future, already surpassing Saudi to become the world’s second-largest producer.

The other key development for global markets is the escalating tit for tat tariffs on $50bn worth of goods between the United States and China, where the latter is threatening to include energy products in the mix.