Is OPEC Breaking Up? Iran Stormed Out of a Crucial OPEC Meeting – What Does it Mean for Oil Prices?
Saudi Arabia and Russia want to increase oil production by 1 million barrels a day. Iran opposes removing the current restrictions, in place since 2016. While Saudi Arabia and Russia have nothing limiting them from producing more and gaining a greater market share, Iran would be held behind, unable to increase production, due to US sanctions, forced to watch as the other OPEC members capture a greater market share.
Since powerhouses Saudi Arabia and Russia were gaining support among the other cartel members, Bijan Zanganeh, Iranian oil minister, dramatically exited from OPEC’s essential meeting in Vienna.
What does this mean for the price of oil?
Two potential outcomes:
1. The proposal would pass, sending prices lower.
2. The proposal would not pass, sending prices higher.
If it passes, increased production push prices lower. Saudi Arabia and Russia are the two largest producers and have significantly more influence than Iran. Momentum is clearly on their side, evidenced by Iran slamming the door on the way out.
But would passing such a vote finally break up the club, as Iran may start in OPEC what the UK started in Europe with Brexit? What would happen if OPEC did breakout, and every producer rushed to export as much and fast as he can to gain as much a market share as he can? Also, the price of oil should fall, on the overproduction. That's exactly what happened when the price of oil lost 75% when it fell from $105 since mid-2014 till $26 at the beginning of 2016.
Technically, the price is developing a third, consecutive bearish, rising flag, completed with a downside breakout. The consolidation after a sharp move, as successful traders take profit, passing the torch to newcomers, who want in on the profits. The downside breakout signals that all the supply at the level has been absorbed, leaving a clear path for bears to keep pushing prices lower.
Meanwhile, the price crossed below the 50 DMA (green), “guarding” the uptrend line since August, which was violated too; the give-and-take between profit takers and the new blood is on the 100 DMA (blue) and the 200 DMA (red) retraces the uptrend line since June 2017, above the $60 key level.