Oil prices surged on Tuesday in the global markets following speculations that the world's largest producer, Saudi Arabia is pressing for more supply cuts as members of the Organisation of Petroleum Exporting Countries and its allies (OPEC+) converge this week on Vienna, Austria.
Oil prices steadied around $61 a barrel on Tuesday as rising expectations of deeper output cuts from OPEC and its allies were countered by a potential delay to a US-China trade agreement until after the next US presidential election. The Financial Times noted earlier this week that maintaining the current production level is the path of least resistance and therefore the most likely outcome.
"Oil's getting support as the market widely expects OPEC+ to extend the current output curbs when they gather this week", said Will Sungchil Yun, a commodities analyst at HI Investment & Futures Corp.in Seoul.
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The oil-producing nations will decide whether to stick with production cuts they've endured for the past three years, relax them or deepen them in the hopes of propping up prices.
The big variable may be USA production.
The challenge for OPEC+ is the strong supply growth elsewhere in the world.
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I think they will be motivated but we need to impose and show our gameplan. He wants to come back with the confidence of the supporters.
Rousseau expects OPEC countries to cut production by another 400,000 barrels per day to balance supply and demand in the first half of next year, with cuts mainly from Kuwait, Saudi Arabia and the United States Emirates go out.
Oil gained on December 4 ahead of an expected extension to production curbs by OPEC and its allies, with further support from industry data showing a larger than forecast drop in US crude stockpiles. The trade dispute between the world's two biggest economies has weakened the global economy and held back oil demand growth. If OPEC cuts production beyond current levels, it risks losing market share to Russian Federation (which everyone should expect to cheat) and the United States.
Saudi Aramco's stock market debut, which is expected on Friday, has put Saudi Arabia in a precarious position as it sets out which oil production is a sweet spot for prices, adding pressure to take into account the interests of state oil giant shareholders. This may not be such a big factor any longer, given that participation in the IPO is being forced down the throats of numerous country's richest citizens. The country already bears most of the production cutbacks of OPEC. The alternative, of course, is to raise production and steal market share from fellow OPEC members.
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