This Thursday, The Organisation of the Petroleum Exporting Countries (OPEC) will hold the most intensely watched meeting they have had in recent years. Investors will be waiting keenly to see OPEC’s next move to get them out of the ‘catch 22’ they find themselves in.

Oil prices have tumbled to lows not seen for years, prompting pressure on OPEC to cut oil production in a bid to lift prices. However, it is not so simple for the 12 member oil cartel, as a cut will encourage US shale oil producers to ramp up production. On the other hand, keeping oil production the same will continue to send oil prices down.

So what are OPEC’s options and what may the effects of their decision be?

Seen as the kings of global oil production, all eyes are on Saudi Arabia, the linchpin of OPEC. Oil watchers widely believe that the Saudi’s have no desire to trim production and want to keep pressure on North American shale producers.

If there is no change we are likely to see further falls in oil according to strategists, who claim that WTI Crude could test $70 on the aftermath and even move closer to $60 a barrel in the long-term.

A small cut may be the best short-term answer for OPEC. Historical figures prove that the market has traded higher every single time OPEC has cut production and analysts believe this will be no exception. The upside may be limited as OPEC is currently producing 700,000 barrels more than the existing ceiling of 30million barrels. A small cut may just mean keeping to the original ceiling, which will help oil on the short-term.

A big cut for OPEC would be to bring the ceiling down to 29.5 million barrels or lower, setting the stage for a big rally. Analysts from Goldman Sachs believe this would send Brent prices back into a range of $85-$90 a barrel. Even though this sounds like an easy fix, as mentioned previously, this would encourage US and other North American shale producers to keep pumping.

The final scenario is that no agreement will be made whatsoever. This may lead to certain countries such as Venezuela and Nigeria, who are facing tough fiscal strains due to falling oil prices, to cut production on their own. This will make it hard to predict the movement of oil price and will depend heavily on the number of countries that choose to make their own decisions.

The past week has been rife with speculation as to what OPEC’s ultimate decision will be. The clearest indications so far have come from Russia and Saudi Arabia, who both claimed that they will ‘monitor’ oil prices and production, but are in no rush to force significant cuts. No commitment, one way or another, in the run up to the Vienna summit on the 27th has caused an unpredictable oil market. WTI has dragged to a four-year low at points, while Brent has seen a third straight day of gains. It seems clear that speculators are anxiously waiting for a firm commitment one way or another.

Will OPEC keep the same output or force productions cuts, big or small?
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