Apparently when OPEC finally agrees on a cut in production, its members cannot agree on the production baseline from which cuts must be calculated. Additionally, meetings between OPEC members and non-OPEC oil producers, have not yielded an agreement either. As a result, oil production prospects remain intact. The price of oil plummeted on Monday, with WTI dipping below the $47 USD mark for the first time since the end of September.
The 4% drop in WTI prices on Monday, affected the currencies of non-OPEC producers. The Colombian peso dropped to a 2 month low, finishing the day at $3,005 COP per USD. The Russian Ruble hit a 1 month low, closing at $63.4 RUB per USD. Both countries will probably be unable to balance their budgets, due to irreplaceable loss of government oil-related revenue.
OPEC countries face a similar if not worse fate. Venezuela is teetering on the brink of collapse, Ecuador is struggling, and even the richest members of the oil cartel like Saudi Arabia, are experiencing high rates of reserve attrition. The situation could become dire quickly than expected. This is why Saudi Arabia had finally agreed to a deal for an oil production cut which would let Iran, its geopolitical arch-rival, ramp up production to pre-sanction levels.
Although the markets initially gave credit to OPEC’s deal making, and the price of crude stayed close to the $50 USD mark for the best part of October, the whole scheme unraveled and now oil prices have a clear downward trend. It seems the bears will prevail for longer than anyone thought. In fact, oil prices might only rise as a result of calamity or when exploration and extraction divestment, suppress oil supply until demand can catch up with the amounts in the market. There is no light at the end of the pipeline for oil producing nations, and the real question now is which country is going to snap first.