OPEC is reported to be planning an emergency summit. The reason is obvious – the oil market downtrend is underway again after taking a short timeout. The participants are going to discuss the ways and means of resisting the unfavorable conditions seen in the global market of crude oil today.
These are not just some rumors. The likelihood of holding another emergency OPEC summit was confirmed by the OPEC President. He says that amid oil prices below $35/b, OPEC members have a lot of reasons to worry about their economies. A couple of days ago, Venezuela urged every single OPEC nation to get together and discuss their future under ultra-low oil prices. The thing is that in order to start another emergency summit, each and every OPEC member need to say YES to it. For now, we know that Saudi Arabia have already approved this idea and is looking forward to the same step from fellow members.
Indeed, these are hard times for all oil exporters out there. At the same time, the global economy seems to be slowing down. The IMF predicts that in 2016 the global GDP is going to grow only by 3,4% instead of 3,6% expected previously. At the same time, China, which is still the world’s biggest consumer and importer of crude oil, is currently seen slowing down as well. The Chinese economy is expected to gain only 6,3% this year against 6,9% gained in 2015. By the way, if that’s the case, this is going to be the worst performance since 1990.
It happens so that the demand for commodities including crude oil heavily depends on the well-being of the entire global economy. Another bearish factor pressing oil prices is obviously the increasing oversupply of crude oil all around the world. Some experts say that the excessive supply is roughly equal to 1,5 million barrels a day. Yet, these are the figures that don’t take into account the forthcoming U.S. oil exports. Indeed, a couple of months ago, the USA became another major oil exporter for the first time in over 4 decades after the U.S. Congress eventually canceled the oil embargo. On top of that, Iran is also coming back to the market as a heavyweight with a couple of millions of barrels a day after the West canceled the sanctions imposed on Iran over its nuclear program. At the same time, Iran seems to be determined to dump the prices in order to oust some of the major players and take away their market share.
Under such circumstances, OPEC looks vulnerable and helpless. For now, it seems that even if OPEC cuts its production quotas, which is unlikely, oil prices are still going to avoid a strong rally.
