Crude oil price had a largest single day rally in nearly two months last Monday following rumors on the likeliness of a deal to limit the oil output at the OPEC meeting in Vienna on Nov 30.
The rumors have removed some of the increasing skepticism that was surrounding the potential deal from last September meeting, pushing WTi higher from a 3 months low near the @42.00 mark.
OPEC’s Secretary-General Mohammed Barkindo said members are fine-tuning the arrangement as he shuttled between meetings with producers to secure agreement before the formal meeting on Nov 30. Barkindo reportedly held an informal talk with Russia – a major non-OPEC supplier whose participation is seen as critical to any output deal success – last week in Doha. Saudi Oil minister Khalid Al- Falih reportedly joined the meeting as well.
Russia has said it would be willing to freeze supply if OPEC could agree on reduction. On the other hand, key OPEC members Iran and Iraq argue that they should be exempt from output restraints.
Price may retreat amid “relentless global supply growth” unless OPEC enacts significant production cuts, the international Energy Agency (IEA) said Thursday. While the election of Donald Trump as the next U.S. president isn’t a key driver for the group, it could put pressure on its members to reach a deal the upcoming meeting.
Analyst who forecasted Oil crash sees OPEC uniting in self-interest.
It’s in the interest of all producers to reach a deal that’s aimed at stabilizing prices, said Gary Ross, executive chairman at PIRA Energy Group. The producer group will probably be able to get members to agree because they all need higher oil price, said Ross. As oil prices plunged from more than $100/bbl to a 12-year low of less than $ 30/bbl in January, No.1 OPEC producer Saudi Arabia has drawn on its currency reserves to cushion the impact. It spent $115 billion last year and is planning to sell a stake in its state-owned oil company.
Saudi Arabia’s credit default swaps – contracts to insure its debt against default for five years- have more than doubled to about 1.47 percentage points from 0.63 points 2 years ago. The cost of insuring fellow OPEC member Nigeria’s debt for 5 years has jumped to 5.33 percentage points from 2.79 points 2 years ago.
Venezuela, meanwhile, is swapping debt to reduce its near term payments. Food and energy shortages have spurred calls for a vote to recall President Nicolas Maduro, and traders are pricing in 91% probability the cash-strapped Latin American country misses payments in 5 years.
“They’re all trying to do what’s in their self-interest, which is trying to cooperate to go ahead and see that OPEC is successful” Ross said.
If OPEC succeeds at this month’s upcoming meeting, the world may see a supply reduction of 500,000 bopd over the first half of 2017, according to Ross. “This could accelerate rebalancing of markets, accelerate the reduction in global surplus stocks and could even eliminate most of the surplus stocks by beginning of the second half of the year” said Ross.
Without a decision on output cut, the market’s rebalancing could be delayed by a year. Ross estimates “very strong “global demand growth at 1.9MMbopd this year and 1.6 MMbopd for 2017, supported by consumption in Asian Countries including China and India. “OPEC wants a $50 – $60 price, and they want to basically accelerate the rebalancing,” said Ross.
Technical analysis summary