OPEC Meeting Preview: Why $50 Oil Is Cause For Concern

Takeaway: While $50 oil will please most OPEC members, Saudi Arabia's market share policy is based on lower prices for all of 2016.

OPEC Meeting Preview: Why $50 Oil Is Cause For Concern - OPEC cartoon 04.24.2015

Hedgeye Potomac Senior Energy analyst Joe McMonigle is in Vienna to attend the June 2 OPEC meeting and participate in various pre-meeting activities this week. Hedgeye will host a OPEC meeting preview conference call on Wednesday, June 1 at 1pm EST with Joe from Vienna and former US Energy Secretary Spencer Abraham from Washington. (For access to the call, email sales@hedgeye.com.)

First, we are not expecting any change in OPEC policy (i.e. production freeze or cut) at this meeting but Joe will be watching closely for signals of how OPEC may approach the December meeting after significant declines in US and other non-OPEC supply.

While he is not predicting a change in policy, Joe believes the December meeting will be the first time in two years when it will be under serious consideration. Meanwhile, production outages in Canada and Nigeria have pushed oil prices to $50.

While that will please most OPEC members, $50 oil is too premature from the viewpoint of Saudi Arabia. The Kingdom's market share policy is based on lower prices for all of 2016; therefore, sustained prices around $50 now will cause concern in Riyadh and could trigger some response.