With stability crumbling in Brazil and Argentina, economic problems intensifying in Ecuador (the smallest of the OPEC nations), and stabilization under pressure in Colombia, this could get very nasty very quickly.
We could be reaching a point where no one player or dramatic event can avert chaos or “re-bottle” the genie.
But investors might find that Russia’s new willingness to talk production cuts with OPEC provides a break in the weather.
Russia Could Help “Find the Floor”
Rising oil prices will not solve all of the problems, even if that rise were an accelerating one. But it would provide at least one welcome element.
Overproduction has become so bad that even Saudi Arabia has increased both production and exports.
The convoluted rationale behind this tactic has strained credibility, but the real reason is simple: The Saudis cannot prevent other OPEC nations from raising volume in a desperate attempt to collect revenue. So they need to appear to be leading the effort.
Russia may be the short-term key to allowing OPEC to ease production levels – and allowing the Saudis to “keep up appearances.”
Moscow will never become a member of OPEC because Vladimir Putin’s Kremlin would never allow an outside organization to dictate how much oil it can produce or trade. But, unlike the United States, Canada, or Mexico, the Russians have had a high-profile observing delegation at the OPEC headquarters in Vienna for some time.
The stage now seems set for a Russian-Saudi meeting to precede a broader OPEC session. That should be enough for crude prices to find a floor and improve.
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