OPEC will meet today (8th June) to decide levels of production.
The FT says this:
‘A large increase in production could damp current high prices, while a decision to maintain production levels would set the scene for a large drawdown of oil inventories and price rally, oil traders believe’
But is this really right?
An increase in production should reduce prices in the short-term, but will maintain or increase volumes.
Maintaining production may maintain or even increase prices in the short-term but it will cause a slow-down in the global economy so there will be a drop in demand later, and that will lead to a drop in price.
Either way there will be a drop in price, it just depends on your timescale.
The first scenario leads to lower prices with higher volumes and the second to lower prices and lower volumes. OPEC should increase quotas.
Today’s takeaway: Timescales matter. You need to know if your competitor is playing a long or a short game to be able to predict their actions.
Update: OPEC talks have broken down without any agreement to increase production. Looks like the short-sighted members have got their way.