This website use cookies to improve your experience, when you visit our site.

OPEC meeting in Vienna - no reduction of output decided

Oil production

At the OPEC meeting in Vienna, the smaller members of the organization could not prevail with its demand for a reduction in the output rate. In particular, Saudi Arabia seems unwilling to take this step. The oversupply in the oil market burdened the oil prices for more than one year, which fell to its lowest level for 7 years after the decision. The rigid attitude of Saudi Arabia against a reduction in the output rate could be politically motivated in parts.

Two fronts are forming in the Opec

As the price of a barrel of oil since June 2014 has declined by more than half, two fractions are building within the OPEC. In particular, the smaller member countries of OPEC are increasingly suffering from the persistently low oil price, and individual state budgets threaten already run into trouble. For this reason, it is hardly surprising that here a group has formed, which is pushing for a reduction of oil production. Venezuela, whose budget is heavily dependent on revenues from oil production, made the proposal to reduce the funding rate by 5%. The financially strong member countries, especially the OPEC heavyweight Saudi Arabia, currently have no interest in reducing the excess supply on the global market. Was that unwavering adherence to the funding rate to date due to the fact that, among others, the competition of the more expensive US shale oil should be put out of business, even if the budget of the Saudis will now also be hit by the low price. It is believed that the adherence to the funding rate by Saudi Arabia, can be explained not only by economic arguments.

Saudi Arabia defends its influence in the region

The Kingdom of Saudi Arabia has increased its political influence in the region massively, and don't want to lose this again. It's not about the influence states such as the US could win in the region, but rather to make Iran the successful return to the global markets as difficult as possible. If Iran is gaining economic strength by the international oil trade, it will significantly expand its influence in the region. This would relatively sure push back the influence of the Saudis. To prevent this, the Saudi leadership seems willing to accept cuts in their own country. Saudi Arabia currently maintain this approach through its financial reserves, ultimately, it is a play on time.

However, before Saudi Arabia is heavily affected by the low price of oil, another big producing country could fall into serious difficulties. The Russian state budget and the Russian economy depends heavily on oil production. A further decline in oil prices could bring the financial system of the geographically largest country on earth to falter. A survey of analysts by Bloomberg news agency revealed that the Russian state budget and the Russian economy are seriously getting into trouble at an oil price below 30 dollars per barrel. The impact could be also felt well beyond the borders of Russia.

Forex Brokers Reviews

  • XM Broker Review

    XM is an investment firm founded by financial professionals and headquartered in London, UK. XM's ambition is to provide fair trading for investors and traders, even with no negative balance with...

    Read more: XM Broker...

  • ThinkMarkets Broker Review

    ThinkMarkets is a global Forex and CFD broker established in 2010. The company has its origins in Australia, where it is licensed and regulated since 2012 by the ASIC under the name TF Global...

    Read more: ThinkMarkets...