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Oil: Next Week's OPEC Meeting Should Offer New Production Roadmap, But Will It?

By Ellen WaldCommoditiesJul 28, 2022 10:15
uk.investing.com/analysis/oil-next-weeks-opec-meeting-should-offer-new-production-roadmap-but-will-it-200528965
Oil: Next Week's OPEC Meeting Should Offer New Production Roadmap, But Will It?
By Ellen Wald   |  Jul 28, 2022 10:15
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Next week, on August 3, OPEC+ will meet to discuss production quotas for September and perhaps for the rest of 2022. This meeting could be of great consequence to oil markets, because OPEC+ has reached the end of its plan to gradually unwind its production cuts from May 2020 and there is no clear roadmap of predetermined quotas.

So, OPEC+ does not already have pre-determined rate increases for the coming months. The original plan had OPEC+ countries returning to full production capacity in September 2022, but in June, the group decided to push up this increase to August because demand was stronger than anticipated.

So, what direction is OPEC+ likely to take? And what would that mean for oil markets?

1. Maintain the status quo

OPEC+ could decide to maintain its current production quotas for another month (September) while it debates internally what to do about the Declaration of Cooperation in general. At that point, the group might decide to maintain its quotas through the end of the year or change them in some way. I see this as the most likely scenario. It is also likely to have the smallest impact on oil markets. But it would mean that OPEC+ would have to deal with the same issue come September.

2. Increase production quotas

OPEC+ could decide to push through another small increase in production quotas for September, but markets might not take this very seriously. Considering that many producers aren’t even producing at their quota level now, it is likely that this move wouldn’t have much of an impact.

3. Cut production quotas

At its meeting, OPEC+ is likely to pay close attention to various global economic indicators to assess whether it believes we are heading into a recession. If the group thinks a recession is likely, it could decide to cut production quotas as oil consumption can drop precipitously during a recession. This move would likely send oil prices higher, as markets would focus on the fact that during a period of high demand and high prices, OPEC+ is choosing to cut production.

4. Dissolve OPEC+

It is possible that key OPEC+ members will argue that the usefulness of the Declaration of Cooperation (as the agreement that formed OPEC+ is called) has reached its end and the production group should be dissolved. Russian participation in OPEC has yielded unwanted scrutiny from the West, and ending this group could resolve some of that tension. In addition, it seems like Russia is eager to produce oil unencumbered by the rates set by the group. Markets would see this as a sign of even more volatility and instability. I think it is unlikely, as Saudi Arabia seems keen to keep Russian involved in oil market management through OPEC.

But let's wait and see.

Oil: Next Week's OPEC Meeting Should Offer New Production Roadmap, But Will It?
 

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Oil: Next Week's OPEC Meeting Should Offer New Production Roadmap, But Will It?

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Comments (4)
Hitendra Chavan
Hitendra Chavan Jul 28, 2022 16:19
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nice article Ellen
Hitendra Chavan
Hitendra Chavan Jul 28, 2022 16:19
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nice article Ellen
Hitendra Chavan
Hitendra Chavan Jul 28, 2022 16:19
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nice article Ellen
Saim Saim
Saim Saim Jul 28, 2022 15:48
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