With oil prices volatile, market watchers are looking toward the G20 meeting in Argentina on November 30 and the OPEC and OPEC+ meetings on December 6 and 7 for direction.
Although heads of state of the three largest oil production countries in the world (The United States, Russia and Saudi Arabia) will all be attending the G20, it is not likely that oil prices will be high on the list of any bilateral talks that might occur. There is little for the United States to say or do on this matter that could influence the market. Aside from using his Twitter account to promote lower oil prices, US President Donald Trump cannot control or even influence oil production in the United States. The US oil industry is comprised of a wide array of producers (both large and small) that make decisions about production based on their own financial concerns. Trump could or would do little to discourage them from maintaining their levels of production.
There has been speculation that Saudi Arabia's Crown Prince Mohammad bin Salman and Russia's President Vladimir Putin may discuss oil production at the G20, but market watchers should not expect to see any serious negotiations or pronouncements. The real discussions that could impact the market are taking place between the oil ministers of Saudi Arabia, Russia and the rest of OPEC as these officials lay the groundwork for next week’s OPEC and OPEC+ meetings.
US crude prices tumbled below $50 for the first time in more than a year early on Thursday after Russian President Vladimir Putin indicated that he is comfortable with current oil prices, though they later rebounded.
The move temporarily cast doubt over plans—currently being discussed among OPEC and non-OPEC producers—to return to the country-by-country production allocations agreed upon and implemented two years ago. At present, some OPEC and OPEC+ countries are overproducing these allocations to make up for supply glitches from Venezuela and Iran. Saudi Arabia, in particular, has been producing between 11.1 and 11.3 million barrels per day of oil in November, which is more than 1 million barrels per day above its allocation of 10.06 million barrels per day, according to S&P Global Platts. Russian oil minister Alexander Novak previously said that Russia was not interested in cutting its production at this time, though this was before Brent fell to $60 per barrel. Even though Putin said that Russia is as happy with oil prices at $60 per barrel as it was when oil was at $70 per barrel, Novak is already discussing cutting production with the major Russian oil companies. It seems likely that they will agree to return to producing at Russia’s previous allocation levels. Russian oil production typically declines during the winter months anyway, so agreeing to cut back production is convenient for them.
Saudi Arabia has stated that it is willing to cut production to “bring stability” to the market in 2019, but that it will not bear the brunt of these cuts alone. This means that Russia, Iraq, Kuwait and UAE must commit to reduce production in January. Of these countries, Iraq will pose the greatest challenge because it has consistently over produced its allocation. Iran, which opposed the decision for some countries to overproduce their allocations at the last OPEC meeting is not likely to oppose plans to return to the previous equilibrium. Iranian oil production declined in October, as did Iran’s exports. Additional declines in exports are likely to occur due to the sanctions imposed by the US. Data from TankerTrackers.com on Iran’s exports for the first 21 days of November confirm this.
If this agreement is reached and if the key producers conform, then oil production could decline by more than 1.55 million barrels per day. Markets would interpret this as a good sign and prices could start to rise. One person who would not be happy about this is Trump, though it's unlikely that he could resort to anything more than venting his frustration. Conversely, if oil prices go back up, even just by $10 per barrel, US shale producers will be very pleased.