Will OPEC Push Oil Prices Higher in 2020?

We’ve come to that special time of year again.. Energy and Capital editor Keith Kohl digs into the OPEC+ meeting that is set to take place tomorrow and questions whether the choice to cut or pump oil has already been made.

For most, the month of December conjures images of stockings, trees, and presents.

I think of OPEC.

Around this time every year, its members get together and coordinate with one another on how best to control global crude prices.

Ever since 2016, however, these December meetings have answered one very important question: Will the production cut deal continue?

You know that deal, right?

OPEC and Russia finally put aside their differences in an effort to bolster oil prices and agreed to curb production.

But did they really have a choice?

After watching the surge in U.S. tight oil production over the last decade, we can’t really blame them for banding together.

How vital has that tight oil boom been for us?

Well, let’s take a quick look…

When it comes to the 12.9 million barrels of oil extracted in the U.S. every day, there are three main parts to consider.

First, we have our conventional production, which makes up a little less than 30% of the United States’ domestic production. The problem, however, is that it’s been steadily declining for nearly 50 years!

Then there are those oil wells in the Gulf of Mexico that extract about 2 million barrels per day.

Both of those, however, are a drop in the bucket compared to U.S. tight oil production, which stands at almost 6.5 million barrels per day — over half of our total output!

That flood of tight oil has been the bane of OPEC’s existence, which has been running its oil racket for the better part of the last 59 years!

So what’s an oil cartel to do?

OPEC 2020: Cut or Pump?

Should it cut?

Should it pump?

So many questions, so little time.

Fortunately, its decision is easier than you might expect.

Tomorrow, the 177th OPEC meeting is set to take place in Vienna, Austria.

In the past, simply rolling over the production cuts into the new year was enough to do the trick.

This time around, extending the cuts may not be enough to keep crude prices stable. Throughout the year, Brent crude has been trading between $55 and $65 per barrel.

And there’s one reason OPEC and Russia will agree on deeper cuts…

Cold, hard cash.

Last year, OPEC boosted its year-over-year net oil export revenue to $711 billion.

That was 32% higher than its net export revenues in 2017.

Sadly, this year won’t turn out as well.

The EIA expects that OPEC will haul in a little over $600 billion in 2019.

This is more than just wanting higher oil prices… OPEC NEEDS them.

Even Iraq, which has been pumping out crude at a rate of 3.5 million barrels per day last month, is hoping OPEC+ slashes production further.

The question is whether cutting output by 1.6 million barrels per day will be enough to send prices higher.

Perhaps.

That would come out to another 400,000 barrels per day added to the current deal.

Truth is, it wouldn’t be that difficult to reach that level, and some members wouldn’t even have to cut their current production to meet the new target.

One of the worst kept secrets inside OPEC has been the collapse of Venezuela’s oil industry. At the end of 2018, the country was extracting around 1.34 million barrels per day.

In September, Venezuela’s output had fallen to roughly 670,000 barrels per day.

At this point, it’s only a matter of time before it falls to zero.

More importantly, the loss of Venezuelan crude from the global market is creating a perfect storm for an unlikely competitor.

And this time, it all comes down to quality over quantity.

We’ll dig into this grossly overlooked opportunity in the oil sector next time.

Until next time,

Keith Kohl

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A true insider in the technology and energy markets, Keith’s research has helped everyday investors capitalize from the rapid adoption of new technology trends and energy transitions. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital, as well as the investment director of Angel Publishing’s Energy Investor and Technology and Opportunity.

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