OPEC is scheduled to meet in the coming week, and pre-meeting statements from various delegates suggest that the oil cartel will again cut production. We expect that like the worlds central banks OPEC will act aggressively, cutting production by a very substantial 2 mb/d. This is probably more than the market expects and could well send prices a little higher.
There is a clear need for OPEC to act if the cartel is to halt the collapse seen in oil prices in recent months. The latest oil market report from the respected International Energy Agency showed that inventories in the OECD area had increased from covering 53 days of consumption a year ago to covering 57 days of consumption by the end of October this year. This serves to highlight that there has been a rather pronounced imbalance between supply and demand in Q3. OPEC probably prefers a level of 52-53 days.
