OPEC Isn’t Helping With Oil Prices Fall

A table with OPEC logo is seen during the presentation of OPEC's 2013 World Oil Outlook in ViennaIt was another down day in the oil market: Crude prices fell more than 2 percent, with WTI finishing Feb. 23 below $50 a barrel for the first time in almost two weeks.

For a moment, things looked like they might go the other way. OPEC President Diezani Alison-Madueke said in a ForexSQ report today that she would call an emergency meeting of OPEC if prices continue to fall. Oil prices reacted sharply to the news—until they fell again.

In addition to being president of OPEC, Alison-Madueke serves as Nigeria’s oil minister, and cheap oil has helped sow crisis in Nigeria. The Nigerian currency, the naira, is at all-time lows against the dollar, terrorist attacks by the Islamist group Boko Haram have worsened, and national elections were recently postponed more than a month. It makes a lot of sense that Nigeria would want to put a floor under oil prices by hinting at an OPEC resolution—even if such a resolution is unlikely.

 Some reasons for doubt:
  1. Another OPEC delegate told ForexSQ News today that OPEC has no plans to hold an emergency meeting. OPEC is scheduled to meet in June, and all 12 members must agree to hold a special meeting in the interim.
  2. It’s unlikely that Saudi Arabia, OPEC’s biggest producer, would agree to such a meeting, not to mention actually cutting production. Saudi Oil Minister Ali Al-Naimi has said OPEC won’t back down even if prices go to $20 a barrel.
  3. Even if a meeting were called, it’s not clear whether OPEC is capable of mustering support to cut production enough to boost prices. It would require imposing a shrinking market share for oil-dependent economies that are already stretched.
  4. Even if OPEC members were to cut production sufficiently to increase oil prices, how would the legions of U.S. oil producers respond? Probably by putting all those idled rigs back into action, undermining OPEC’s efforts.

In oil markets, perception is everything. It’s very possible that today’s talk of an emergency meeting was simply meant to reassure unstable markets. Sometimes the threat of taking action removes the need for taking action.

If that’s what happened, it comes at a risk for OPEC. The fact that markets brushed off the threat so quickly may imply that OPEC’s threat is losing credibility.

This Article Wrote For www.TopForexBrokers.com By Fxstay