Commodity

Crude Prices

How much lower could crude go from current levels?

As the OPEC meets in Vienna on sixth of December, the big item on the agenda would be the falling price of crude oil. In the last 2 months the price of Brent has cracked from $86/bbl to $58/bbl; a little over 32%. Apart from the dilution of Iran sanctions, the fall was hastened by worries over a global slowdown. Will the OPEC cut supply?

OPEC may think twice

OPEC and Russia may be a little more circumspect about cutting supplies. It worked in 2017 when growth prospects were strong for global GDP. Now IMF has downgraded growth by 20 bps due to the impact of trade wars between the US, Europe and China. When growth shrinks, the first casualty is oil demand and the worry for OPEC and Russia could be that supply cuts could be a self-defeating proposition in this case. Also, OPEC numbers hint at an urge to keep the oil supply flowing. Even Russia is not too keen on supply cuts. 

Action shifts to the G-20

 

Even before OPEC meet, the G20 nations meet at Buenos Aires in Argentina on November 30th and on December 01st. This will probably be the meeting that the oil markets may be really looking out for. There are 3 reasons for the same. Firstly, the G-20 will set the tone for the future of Iran sanctions. With the EU, China, Japan and India opposed to Iran sanctions, Trump may look at G-20 for honorable exits. Also Trump may look to balance its ties Iran, especially after the Khashoggi incident in Turkey. Secondly, there are strong expectations that both the US and China could tone down their aggression on trade wars during the G-20 Summit and that would be a big boost for world growth. If that happens then oil could be back on its upward trajectory. Lastly, oil is a function of global investments and that has been faltering. Oil prices would depend on the big investment idea of G-20! ©

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