Oil price: OPEC+ is unlikely to surprise the market

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Today in Vienna will be the 175th meeting of OPEC, in which the members of the cartel will decide on further regulation of the market. Earlier, the Russian President said that the summit “Big twenty”, he managed to reach arrangements with the Prince of Saudi Arabia about further production cuts, which caused growth of quotations.
Wednesday was the meeting of the monitoring Committee of OPEC+, which was recommended to extend the deal for another six months and cut production, starting from the September-October level of production. Recall that in September 2018 the total production of OPEC amounted to 32,76 million barrels a day in October, production reached 32,90 million barrels per day. The amount necessary to reduce the quota under discussion, the proposals range from 0.5 to 2 million barrels per day.
In our view, the decision to extend the deal with the big share of probability will be accepted. It is beneficial to the majority of its members, in particular Russia, Saudi Arabia, Venezuela and the United Arab Emirates because the economy of the countries is based on revenues from hydrocarbon exports. For Russia the participation in the transaction has a twofold effect. On the one hand, from the reduction of production price increases, the country received a windfall from the sale of oil, on the other hand we cannot compete with USA for first place in terms of production as are bound. However, in conditions of economic hardship additional income for the country is obvious in the first place.
According to our forecasts, the agreement will be extended for six months, the estimated amount of reduction of extraction of raw materials is 1 million barrels. Special conditions will be provided to Iran, Libya, Nigeria and Venezuela. The market reaction will be muted because the outcome is largely predictable. Quick recovery can be expected. In the best case until the end of the year the price of Brent crude will return to $64-67 per barrel.
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Anna Kokoreva,
The Deputy Director of analytical Department,
Alpari