OPEC Expected To Sit Tight At Friday’s Meeting

Crude oil tumbled on Wednesday after the release of the official weekly inventory and production report. WTI is trading at 59.60 this morning while Brent oil is holding at 63.88.  Friday’s OPEC meeting will be the most significant event to affect the commodity since their last meeting in late November 2014. News, rumors and comments continue to barrage the headlines ahead of the meeting as members argue their countries interests in the tabloids. Oil prices fell on Wednesday, as traders and investors ignored a fifth straight weekly decline in US crude stockpiles and focused on a build in distillates. US crude stockpiles fell by 1.95 million barrels last week; however distillates rose by 207 million barrels.

Signs that global output is not falling much despite the crude glut pressured both markets. The Saudi-led OPEC cartel, set to meet in Vienna on Friday, has indicated it does not plan to reduce production. Iran, traders worry, could inject another million barrels a day into the market if it reaches a deal soon on its nuclear programs that would lead to a lift of sanctions.

And the United States is still producing nearly 9.6 million barrels a day, 1.2 million above a year ago, despite the pressure from low prices on high-cost shale oil drillers. In the week to May 29, US output actually rose by 20,000 barrels a day, the US Energy Department reported.

Oil producers hoping OPEC will cut output Friday to boost sagging prices are likely to be disappointed: The cartel’s Gulf powers aren’t about to surrender. Saudi Arabia, Kuwait, the United Arab Emirates and Qatar are leading a fierce battle to protect OPEC’s global market share by forcing others, like U.S. shale producers and Russia’s state energy giants, to live with lower prices. Years of $100 a barrel oil allowed the four exporters to amass reserves of $2.4 trillion, according to the Sovereign Wealth Fund Institute, a huge war chest for countries with a combined population of fewer than 50 million people. Saudi Arabia’s oil minister Ali al-Naimi led the charge at the OPEC meeting back in November to keep pumping in the face of falling prices. That decision accelerated the price collapse, as it became clear the Saudis were playing a long game.

“We’re not going to cut production, certainly Saudi Arabia is not going to cut,” Ali al-Naimi told CNN in December. Asked if that position would hold for the first half of 2015, he bluntly stated, “No, it’s the position that will hold forever.”

Despite a 40 percent recovery in oil prices since January, the International Monetary Fund estimates that the Gulf producers will forego $287 billion of revenues this year. The collective response by the 12-nation cartel is to go flat out with production, hitting 31.2 million barrels a day in April, according to the Paris-based International Energy Agency. That’s well above its stated quota of 30 million barrels.

And life may get even more complicated if Iran is able to agree a nuclear deal with the U.S. and other world powers by the end of June.