Brent prices hit $60 a barrel 10 days ago and have maintained that level ever since, sparking talk that this could be the new floor under oil prices and that $70 oil in the short term is now not only in producers’ wildest dreams, but a real possibility.
Although OPEC never officially admitted it, analysts have largely thought that pushing oil up to $60 was one of the cartel’s goals with the production cut deal.
Three weeks before OPEC’s November 30 summit in Vienna, some oil producers have already started thinking that $70 is the ‘fair price’ for oil, fairer than $60, Julian Lee, oil strategist for Bloomberg First Word, writes.
But if the cartel wants to target a higher price (which it won’t officially communicate to the market), it will likely trigger a new wave of U.S. shale production next year. More importantly, that higher oil price target may meet the resistance of Russia—the leader of the non-OPEC group of producers’ pact—which is now generally viewed as steering the OPEC/non-OPEC oil production policy, together with OPEC kingpin Saudi Arabia,
Both the Saudis and Russians have signaled that they’re willing to extend the pact beyond March 2018, lending further support to oil prices over the past few weeks.
The higher the price of oil, the stronger the temptation for OPEC members to cash in on short-term gains and cheat (even more than they do now). Currently, Saudi Arabia is over-complying with its share of the production cuts, covering for rogue members—most prominently, OPEC’s second-biggest producer, Iraq.