Can OPEC Freeze Output -by- Michael Oyebamiji

April 15, 2016 by

OPEC will be meeting in DOHA on April 17, most market participants are expecting a possible production freeze in other to enhance oil price. Oil price has rallied from the lows of $26.00 to the highs of $43. This rally could be attributed to speculations about a possible production freeze by OPEC in the upcoming meeting.

Many oil producing nations who rely on oil revenue are currently running a deficit budget. Countries like, Saudi Arabia, Venezuela, Nigeria, etc. are all expecting OPEC to freeze production in other to help increase their revenue from oil proceeds. The fundamentals surrounding oil is actually very bearish for oil price. Take for example, Russia’s oil output is at a record high of 11 Million barrels per day, Saudi Arabia is producing 10.2 million barrels a day and the overall global output is at a record level of 32.5 million barrels a day. It should be noted that Iran has joined OPEC because their sanction have been lifted. This means they are also adding to production capacity and hence over supply in the market. From basic economic principle, excess supply will lead to fallen price. This is the situation with oil price, oil production is at a record level and demand has dropped because of global economic slowdown in China which is the biggest consumer of oil and also due to innovations in science and technology towards using green energy.

Furthermore, the meeting on Sunday will make a big impact if OPEC members can agree to a production freeze. Oil price could rally all the way to $50 and the stock market will see a big bounce as well. Over the past couple of months we have seen a strong correlation between oil price and the stock market. However, due to political influence among some OPEC members, they might oppose an agreement to freeze production. This is basically between Iran and Saudi Arabia. failure to freeze oil production in the next meeting might take prices back to the lows of the year around $26