Oil prices experienced their largest drop in two and a half months on the Friday after the Thanksgiving holiday. WTI fell nearly $3 per barrel and Brent fell almost $1.44 per barrel.
OPEC building in Vienna ready for the holiday season.
Some attribute this price action to a Bloomberg article which said that Saudi Arabia is dissatisfied with so many OPEC and OPEC+ members cheating and over-producing their oil production quotas that the kingdom might try to punish them by increasing its own production. Right now, Saudi Arabia is producing under its quota—at a rate of 9.8 million barrels per day—but it could decide to increase its oil production to the full quota of 10.31 million barrels per day.
The question is whether the threat of flooding the market with 510,000 more barrels per day will be enough to pressure Nigeria, Iraq, Kuwait and Russia to cut their oil production and comply with their mutually agreed upon quotas. Considering that Reuters just reported that OPEC’s total production for November is even lower than its October production, Saudi Arabia may have a hard time convincing the overproducing members to cut back.
Such a significant drop right before the OPEC and OPEC+ meetings next week is perhaps compelling evidence that OPEC and OPEC+ countries should stick together and comply with their quotas. Otherwise they may face further price drops.
OPEC will meet on December 5 in Vienna. This meeting will be followed by the OPEC+ meeting on December 6. Both groups are expected to extend the current quotas from their current expiration in March 2020 to June 2020.
