Iran and Saudi Arabia couldn't reach an agreement to cap excessive oil production during OPEC's September meeting, which means crude oil prices will remain volatile.
Saudi Arabia offered to limit its production, hoping Iran would follow suit. The hope was to establish a balance between supply and demand. But according to Reuters, Iranian Oil Minister Bijan Zanganeh said on Sept. 27 that it was "not the time for decision-making."
This shouldn't be surprising to Money Morning subscribers, though, as Dr. Kent Moors said on Sept. 22 an agreement on oil production would not be reached at the Algiers OPEC meeting.
But Moors does have a bold oil price prediction, as well as a prediction for when OPEC may finally agree to limit production.
Before we share his predictions, we wanted to make sure our readers knew why OPEC's current policies are creating such volatile crude oil prices...
Currently, OPEC and non-OPEC members have an "open tap" policy.
That means members and non-members produce and sell oil as quickly as possible.
Trending: How U.S. Interest Rates Impact Your Money
"This 'open tap' approach leads directly to producers wrestling market share at the expense of others and is accomplished by a complicated series of export pricing changes and discounts, especially targeting the expanding Asian market," Moors said on Sept. 22.
You see, if one country cuts its production, another country will just produce more oil and sell it faster.
"It's a zero-sum game with the winners changing from month to month and only then by effectively reducing realized revenue," Moors said.
But this excessive production won't last forever...
In fact, Moors believes oil prices could start to stabilize after the next OPEC meeting. And his 2016 oil price prediction suggests oil prices could climb as high as 22% by the end of 2016...
[mmpazkzone name="in-story" network="9794" site="307044" id="137008" type="4"]
Moors didn't expect oil production policies to change at this meeting. Rather, he says OPEC's meeting on Nov. 30 will be far more significant in rebalancing oil supply and demand.
"However, ignore the rumblings about a breakthrough production cap during the Algiers IEF summit," Moors said on Sept. 22. "Rather, the real consensus will emerge 'off camera.' Signals now suggest the announcement of a 'special' OPEC meeting at its Secretariat in Vienna."
You see, this September OPEC meeting started the discussions on capping oil production. It will take time before OPEC can reach an agreement.
Khalid al-Falih, Saudi Arabia's Energy Minister, said OPEC needs to take a gentle approach, according to The Wall Street Journal.
And when OPEC finally agrees to stop excessive production, crude oil prices will climb.
By the end of 2016, Moors predicts the price of crude oil will reach the mid-$50 range. From today's opening price of $44.96, that's a potential climb of 22%.
And by Q1 2017, Moors predicts crude oil prices will climb even higher... Moors believes oil will trade for $60 a barrel in Q1 2017, a potential climb of 33% from today's opening oil prices.
The Bottom Line: Crude oil prices will remain volatile after OPEC could not reach an agreement to cap excessive production. Right now, supply exceeds demand and is keeping oil prices low. But this meeting may have just been the framework for OPEC to negotiate capping production on Nov. 30 in Vienna. When oil production is capped, supply and demand will rebalance, allowing oil prices to climb.
Up Next: Turbocharge your investing returns with our top 5 money-making investment reports. Get them now - they're absolutely free. Click here...
Follow us on Twitter @moneymorning and like us on Facebook.
