Petroleum

Oil Prices Tank on Black Friday

Falling Prices

As American shoppers filled retail stores in search of deals on Black Friday, oil prices plummeted on rumors that leaders of the Organization of the Petroleum Exporting Countries (OPEC) have been unwilling to come to an agreement to deepen oil production cuts. West Texas Intermediate (WTI) crude prices fell 4.59% to $55.54 per barrel, while European Brent crude fell by 4.27% to $60.57 per barrel. WTI snapped a three-week winning streak, while Brent prices still managed to maintain a six percent price increase through November, making it the best month since last April (Stevens, 2019).

In recent weeks, oil prices had remained steady on the hope that members of OPEC would work together to address the global oil supply glut. While Saudi Arabian officials had originally announced plans to extend its current production cut quota through June 2020, the ongoing Saudi Aramco IPO process has complicated matters for the country (Kool, 2019).

Saudi-Aramco
Source: Middle East Monitor

OPEC Tensions

Tensions are high as OPEC leaders plan to hold a vital December meeting in Vienna. As U.S. oil output continues to hover around record levels, OPEC has been discussing opportunities to counteract the American oil revolution. Leaders were expected to announce an extension of the current output cut of 1.2 million barrels per day; however, Russia is expected to continue to push back on the notion of oil production cuts. Russia has not complied with OPEC agreements to cut output and has continued to overproduce compared to other OPEC countries.

opecshot-2
Source: OPEC

Russian Production

According to production data from the Russian Energy Ministry, Russia delivered 11.244 million barrels per day from November 1st through the 26th, which exceeds their agreed upon quota by 54,000 barrels per day (Kool, 2019). Russian Energy Minister Alexander Novak is expected to ask OPEC leaders to rethink the oil production cuts to allow Russia to produce more oil (Stevens, 2019). Although, if production continues to increase, the oil supply glut is likely to continue into 2020.

While Russia has consistently been labeled as a nation that has failed to adhere to the production cut  agreements, numerous other OPEC and Non-OPEC nations have also neglected to maintain production cuts (Kool, 2019). Saudi Arabia has also continued to overproduce oil as the nation has become increasingly impatient with other OPEC nations (Kool, 2019). However, Saudi Arabia’s new oil minister, Prince Abdulaziz bin Salman, has expressed that he will be aiming to reduce output from non-compliant oil producers within the country.

1200px-Azerbaijanoil
Source: Wikipedia

Promising Data

Even though oil prices fell on Black Friday, prices remained up in November, which has traditionally been a weak month for oil. In the past, when oil prices have increased in November, prices have also increased in 10 of 13 cases in the month of December (Sarubbi, 2019). Given the historical data, energy analysts predict that oil prices could rise to $64-$65 per barrel by the end of January.

Sources:

Kool, T. (2019). Is Today’s Oil Price Plunge A Sign Of Things To Come? Yahoo Finance: https://finance.yahoo.com/news/today-oil-price-plunge-sign-180000376.html

Sarubbi, B. (2019). “Oil To Rise Into December-January.” Forbes: https://www.forbes.com/sites/greatspeculations/2019/11/29/oil-to-rise-into-december-january/#2e782e7e1e2d

Stevens, P. (2019). “Oil drops 4%, cutting gains for the month.” CNBC: https://www.cnbc.com/2019/11/29/oil-markets-opec-meeting-in-focus.html

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