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Don't Expect OPEC To Make Changes To Its Agreement

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Don't Expect OPEC To Make Changes To Its Agreement

OPEC and other non-member energy giants like Russia agreed in June to extend its 2016 supply reduction deal to boost energy. But a few months into the extension and oil prices remain stuck below the $50 per barrel mark, which indicates the agreement isn't working in supporting oil prices.

According to Bloomberg, OPEC members will be meeting on Monday in Russia and expectations for further output cuts can be ruled out, Saudi Arabia's Minister of Energy and Industry Khalid Al-Falih told reporters on Monday. Also, there won't be any discussions regarding any changes to OPEC members that are immune from the supply cut agreement, Nigeria and Libya.

The Interesting Dilemma

When oil prices were trading north of $50 per barrel a lot of American energy producers were attracted to the market and many companies turned their production back on, Helima Croft of RBC Capital Markets told CNBC early Monday morning. But with oil trading at less than $50 a barrel, American oil production won't grow a lot which poses a conundrum for OPEC members, particularly Saudi Arabia.

OPEC members can take action this week to push oil prices higher but this will have the unintended consequence of boosting American oil production higher for 2018, she explained. On the other hand, OPEC can "stay the course" at a time when it needs to keep American companies on the sidelined the most ahead of a Saudi Aramco IPO next year.

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Image Credit: © Vincent Eisfeld / vincent-eisfeld.de, via Wikimedia Commons

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