Markets are already hot on the trail for the upcoming OPEC Meeting in Vienna. The fundamentals of the oil market should give pause for caution considering the substantial supply-demand imbalance which has weighed on prices for nearly a year. With global inventories rapidly filling to the brim of capacity, drastic action is necessary to stabilize prices and reverse the slide of the past year. While the proper action for the Cartel would be reducing output quotas of member nations, these concessions will be impossible to extract from certain members which could lead to the breakup of the Cartel and a new round of price instability.
Friday Meeting
Members of the cartel will be meeting on Friday to assess the current state of the oil market in what is likely to prove a tense standoff. There are a number of competing interests that are unlikely to agree on a unified stance. On the one hand, there are countries such as Iraq and Saudi Arabia which are engaged in fierce price competition to maintain and gain market share. The other purpose of their ongoing price war is punishing the tight oil patch in North America which has rapidly grown to be a formidable production force. In many ways the industries including shale and oil sands have managed to scrape by despite the ultra-low price paradigm.
On the other side of the aisle is the weakest of the Cartel members such as Nigeria and Venezuela. These nations are on the brink from an economic and political standpoint depending on the case. The Venezuelan socialist empire has new daily tales about the pace of hyperinflation and shortages as oil revenues were used to finance huge welfare programs with no proceeds reinvested in the care and maintenance of critical energy infrastructure. Other members have also been punished economically from the actions, including Saudi Arabia which is running a substantial fiscal deficit. The broad expansion of social welfare programs and subsidies in member nations threatens to be their very undoing.
