As I write this piece, we are still awaiting the official announcement of the outcome of the OPEC+ meeting in Vienna, but given the organization’s penchant for controlled leaks, and given that every major news organization is reporting a million barrel a day increase in output it is fair to assume those reports are accurate. So, as always, the question is what this means for traders and investors, and how can they profit from it?
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Any analysis of the potential impact must start with what didn’t happen. Contrary to what was said by some going into this meeting, the different objectives and needs of OPEC’s various members did not result in the breakup of the cartel. For future reference, nor is it likely to any time soon. OPEC is, despite being inherently as anti-free-market as you can get, a great example of why capitalism works. When nations as diverse and divided as Saudi Arabia, Iraq, Iran and Venezuela can come together to maximize profit it is an indication of the power of the greed that moves markets, and that power should never be underestimated.
Secondly, as this Wall Street Journal article accurately states, while the crude oil output limits have been technically raised by a million barrels a day, the reality will fall well short of that number. The main proponents of an increase, Russia and Saudi Arabia, both have the existing capacity to increase immediately, but that is not true everywhere. By dividing…