Production cut in OPEC’s Vienna meeting unlikely

OPEC members will hold their winter summit in Vienna tomorrow. Some expectations are there in the market that there could be some consensus over production cut. Venezuelan representative at OPEC said that he will be calling for 5% production cut, whereas Iran is expected to inform OPEC that its plans to increase production by 500,000 barrels/day by next year, in response to sanctions removal by western countries.

A consensus among OPEC members are unlikely, given the failure to come to a consensus with non-OPEC counterparts, especially Russia, which is producing at fastest pace since the Soviet era. Even inside OPEC, there seems to be lack of consensus. Venezuela, Iraq, Iran all who have been calling for production cut, has not reduced productions themselves. Moreover, Iran will produce, even if OPEC doesn't increase the current quota.

OPEC, despite drop in oil price by more than 60% since mid-2014, has been breaching its production quota of 30 million barrels by an average 1.7 million barrels per day.

That means, OPEC members are looking to Saudi Arabia, OPEC's largest producer for production cut. Saudi Arabia has been producing more than 10 million barrels/day throughout the year. In recent communications, it has indicated that it is open to negotiations with OPEC and non-OPEC producers, however it is unlikely that Saudis alone will bear the burden.

Oil is likely to face renewed pressure if quota is raised due to Iran's increased production. Bearish pressure is likely to persist even if the quota remains at same level.

Brent is currently trading at $43.1/barrel.