Meetings in Vienna this week that include Russia and OPEC are likely to result in oil production being increased in the months ahead, and that’s likely to have a negative impact on the price of oil. Supply issues in Venezuela and other parts of the world are driving much of the push to increase output, as those problems have resulted in cuts effectively being even deeper with additional output being absent.
This was also part of the reason behind oil prices rising to four-year highs recently, as we saw prices reach $80 a barrel. However, since then we’ve seen prices come back down. Brent oil has dropped to under $74 while West Texas Intermediate is below $65. If production increases, or is expected to increase, then we’ll see even bigger declines.
The bearish activity we’ve recently seen in the markets has happened in the absence of any formal announcement, and so once we see confirmation, especially if it’s a bigger increase than expected, that could send these prices down sharply. This could be a problem for oil and gas investors as stocks like Cenovus Energy Inc (TSX:CVE)(NYSE:CVE) and Enbridge Inc (TSX:ENB)(NYSE:ENB) have been struggling even though oil prices have been rising, and a more bearish outlook could see their share prices fall even more.
A higher price of oil hasn’t been enough to lift the industry out of the downturn, and so a drop in prices could make matters even worse. The market is telling us that a sharp increase in production could be me met with an even bigger decline in oil prices.
