15 Oct 15

Russia and OPEC to push up oil prices?

On the oil market, prices seem to have reached the bottom. In recent days the price of a barrel of crude has several times tried to break through the level of 50 dollars a barrel (West Texas Intermediate). For the time being without much success, but more and more analysts believe that the worst on the oil markets is now behind us. A consolidation around the level of 50 dollars may give the signal that oil prices can recover further. Supply and demand seem again in balance, although it is still too early to say anything definitive about this evolution.

China continues to be important for the oil market

The most important factor in the oil market is still currently  China. The economic indicators clearly indicate that the Chinese economy is growing at a slower rate. But nevertheless the consumption of oil in China remains at a high level. On the other hand, the output of Russia almost reached the level of 10.75 million barrels a day and that is the highest level since the fall of the Soviet Union. The Russians have taken advantage of a slight recovery in the price of oil on the market. Moscow's argument is that Russia should not reduce its production when the OPEC members refuse to reduce their production quotas. The chances are high that Putin and his ministers will try to put more pressure on Saudi Arabia and the other OPEC countries to cut their production.

Cooperation between Russia and OPEC is necessary

Maybe Russia is playing a game of bluff poker. By selling more oil the Russians are showing the OPEC countries that they are not afraid of the low prices on the market. In addition, they have reacted to the fact that Saudi Arabia is offering a large discount on the oil it sells to its customers. The message is perfectly clear: the Russians want Saudi Arabia and the other OPEC members to work together with themselves to stabilize the oil price. Rumors about a planned meeting between Russia and OPEC haven’t been confirmed, but such a meeting seems only logical. If the meeting delivers results, oil prices could break through the level of 50 dollars a barrel faster than expected.

Authored by: Tim Harrup