December 8, 2019

OPEC Meetings

OPEC Meetings

Members of the Organization of the Petroleum Exporting Countries (OPEC) are set to meet in Vienna on December 5th to discuss production output for the foreseeable future. This is the organization’s second and final meeting of the year and follows July’s meeting where the decision was made to restrict production for the following 9 months. OPEC’s ministers will then meet with allies on Friday known as OPEC+ to further continue talks.

July’s Meeting

As mentioned above, July’s meeting saw OPEC’s 14 member states, and it’s 10 allies agree to continue its January commitment to cut its oil supply by 1.2 million barrels per day in a bid to drive up oil prices. However, with Brent Crude now trading nearly 20% below April highs, it appears that maybe these cuts were not harsh enough.

Additional Cuts

In a report released Tuesday, JPMorgan signalled that OPEC and the other major oil producing countries are expected to further increase cuts from 1.2 million barrels per day to 1.5 million bpd and extend the cut from March to the end of 2020. This comes on the back of reports that OPEC’s Economic Commission Board (ECB) projects a build up of inventories and a large oversupply of oil in the first half of 2020 at current production rates.

The report also indicates that Saudi Arabia’s new energy minister, Prince Abdulaziz bin Salman will lobby other OPEC members to deepen supply cuts further in an attempt to keep oil price’s high during Aramco’s IPO which is set to be priced on December 5th, the same day OPEC will meet in Vienna.

Aramco IPO

Aramco, Saudi Arabia’s state-owned oil company and the worlds largest oil producer, is set to seek a valuation of up to $1.7 trillion when it announces it’s upcoming IPO on Thursday to coincide with OPEC meetings. This would see Aramco easily bypass Apple as the world’s most valuable publicly traded company and would mean that Aramco’s IPO would set a new record, bypassing Alibaba’s $25 billion flotation in 2014.

Whilst Aramco was by far the most profitable company in the world last year with a net income of $111 billion, the general consensus amongst money managers has generally been downbeat regarding the oil giant’s valuation.

For example, in a recent Bloomberg survey, more than 40% of money managers questioned estimated the company to be worth between $1.2 and $1.5 trillion, with a further 25% valuing the company at $1.1 trillion or less. This is a far cry from the original $2 trillion valuation originally voiced by Saudi Arabia crown prince Mohammad bin Salman.

All Eyes On Vienna

Although many analysts foresee OPEC implementing additional cuts to their oil supply and the benefits of further cuts are evident for Saudi Arabia and the Aramco IPO, others hint at a different outcome from this week’s meetings.

Whilst analyst’s at JPMorgan suggest further cuts to OPEC’s supply are on the horizon, analysts at Goldman Sachs predict that OPEC and its allies will keep production cut’s at current levels.

With such uncertainty surrounding the outcome of this week’s OPEC meetings, there is only one thing that can be said for certain:

Expect volatility in the oil markets in the coming days!

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