One day ahead of OPEC’s much anticipated meeting in Vienna, oil has slid back under $46 on rising pessimism that an oil production cut deal, taken widely for granted as recently as last week, is not going to take place.
Here is the latest rundown of events heading into the Wednesday meeting.
As Bloomberg highlights, Russia’s absence from discussions in Vienna is creating complications for OPEC members that insist on participation of non-members in supply cutbacks with one day to go before OPEC ministers meet to decide policy. Earlier today, Russian Energy Minister Alexander Novak said he has no plans to visit Vienna on Wednesday, but Russia is ready to talk with OPEC once group reaches an internal consensus
Meanwhile, as reported yesterday, Iran, Iraq continued to express objections to cutting their own supply during lengthy meeting of OPEC officials Monday, as talks failed to bridge differences, one delegate said. In Monday’s talks, Saudi offered proposal for Iran to freeze its own output at 3.707m b/d; Iran offered to cap its output at 3.975m b/d: delegates; at the same time mediator Algeria proposed that Iran freeze at 3.795m b/d, and amount which was greater than the 3.69m b/d Iran pumped in October according to secondary sources. Yesterday’s unsuccessful talks also didn’t reach agreement on Iraq; Algeria proposed Iraq cut 240k b/d from its October level
That said, in keeping an appearance of optimism, Iraq’s minister told reporters in Vienna Tuesday he’s still very confident about OPEC meeting.
Surprisingly, today’s dose of cold water came from an unexpected source, when Indonesia energy minister Ignasius Jonan told reporters in Vienna that he has “no expectation” ahead of the OPEC meeting, and that his country has “mixed feelings” about the meeting, but will listen to major players in group. He is expected to meet his Iranian counterpart tonight.
“There are growing thoughts that after much rhetoric and bullish chatter, OPEC won’t be able to find an accord,,” says Nick Williams, commodities futures broker at GF Financial Markets. “The Indonesian minister’s comments only added to that.”
And speaking of logistics, Saudi, Iran ministers are expected to arrive in Vienna Tuesday afternoon along with other ministers. Algerian Energy Minister Noureddine Boutarfa, who has been negotiating with Russia and Iran, told reporters in Moscow he will go to Vienna today. The delayed Saudi arrival comes after energy minister Al-Falih hinted on Sunday in Dhahran that OPEC doesn’t necessarily need to cut output; comment viewed by analysts as a bargaining position that could result in price crash if no deal is reached.
As a result of all the rising chaos, oil traders are s understandably skeptical, and as Goldman calculated in a note overnight, the oil market is pricing in only a 30% chance of a deal to cut output emerging tomorrow. As Bloomberg reports, “Brent crude may swing $6 a barrel on Wednesday, based on implied volatility for options contracts, analysts including Damien Courvalin and Jeff Currie said in a report Monday. Futures would rally into the low $50s a barrel and average $55 over the first half of next year if the group agrees to a cut, according to the bank. Failure to reach an accord would mean prices would average $45 a barrel through the summer.”
As a reminder, just last week Goldman turned bullish on the OPEC agreement, saying on November 21 that it now expects OPEC to real a production cut deal, in the process raising its Q1 and Q2 2017 oil price forecast; the contrarians in the audience will note by doing so it may have doomed the deal.
Others have taken the other side of the bet, and overnight Bjarne Schieldrop, chief commodities analyst at SEB, says that he thinks there is a “very low chance” of an OPEC oil-output cut tomorrow. The analyst expects more comments along the line of Saudi Arabia’s “don’t really need a cut” assertion from Sunday.
“It becomes imperative to save face,” Schieldrop said adding that OPEC may be “kicking the can to the next OPEC meeting in half a year’s time.”
He also noted that Iran’s offer to cap output at 3.975m b/d means effectively no cut, given avg 2000-2008 production was 3.78m b/d. “It is unacceptable for Saudi Arabia that Iran does not pitch in with a cut” and added that for Iraq, important issue is what country really produced in October, which is baseline month for cuts.
What happens if he is right? Oil is “likely to trade to the downside of $45/bbl as a no-cut is actually communicated, then will return toward $48.”
* * *
For now the market is agreeing with the SECB analyst, and WTI has tumbled below $46 in early trading.
via http://ift.tt/2gBHo9U Tyler Durden