This week, OPEC members (and some non-OPEC members) met in Vienna, Austria to discuss extending production cuts to help stabilize the price of the precious commodity, amid two years of soft oil prices stemming from a supply glut which has ballooned in recent years.
Prior to the meeting, traders had bid up the price of oil, factoring in the possibility of additional steeper production cuts into the price of oil. Post-meeting, however, financial markets sold off oil after the production cut extension agreement largely due to the belief that not enough had been done to rid the market of the growing supply glut.
While the agreement essentially spelled out a continuation of the previous production cuts for another nine months, the lack of an option to continue cuts into 2018 is one of the concerns brought up by analysts assessing the deal. The coalition of 24 countries making the deal will also likely have difficulty curbing the effect of shale oil production out of the U.S. and other non-OPEC countries not agreeing to production cuts. Newer technologies and more efficient extraction methods have played a large role in driving the global supply of oil higher, though traditional production has been capped.
The long-term trajectory for the price of oil seems, at this point in time, to be relatively flat. Many OPEC members spoke after the meeting of a stabilization of prices in the near-term, however given the current supply and demand fundamentals with the oil market, I don’t expect a rebound to 2013 levels anytime soon.
