Crude Oil Traders Brace for November 30 OPEC Meeting

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Oil traders are on the sidelines as the markets edge closer to the November 30th OPEC meeting. Oil ministers of the OPEC member nations will meet in Vienna next Wednesday, November 30, 2016, where a deal to cut oil production is high on the agenda in a bid to stabilize oil prices. It would also formalize the informal agreement to limit production to 32.5 million bpd – 33 million bpd in late September this year.

Still, it is not a done deal as traders are reminded of the OPEC meeting in November two years ago where the cartel failed to secure a production cut eventually leading to a supply glut that continues to this day.

Earlier this week, Oil prices touched a 3-week high at $49.20 amid noise from the side meetings as OPEC member countries continue to negotiate internal deals. Ahead of the US Thanksgiving holiday, Crude oil futures for January 2017 delivery closed at $47.96 a barrel down 0.07% for the day.

As with most OPEC deals, it is likely to come down to Saudi Arabia and Iran which will be critical for the OPEC to reach a consensus. It is still uncertain whether Iran will be exempted from the product limits alongside Libya and Nigeria and the impact of the oil production from the exempted countries will have against the agreed production levels from the others.

Just a week ago in Doha, Qatar, Saudi Arabia’s oil minister said that he was confident that an agreement would be possible. His views were supported by Russia which has repeatedly given its commitment to cutting production to help stabilize oil prices if OPEC does so too.

Oil experts hopeful of a deal

Nomura Securities joins the ranks of many other commodity analysts in noting that there is a high chance that OPEC will strike a deal next week. “There is a 70% chance of a large 1.0 million barrel of the day cut by the cartel,” analysts at Nomura say, while Goldman Sachs also expects higher oil prices calling it “tactically bullish.”

Analysts at GS note that the supply-demand dynamics in the oil markets will make it easier for OPEC members to suffer a short-term pain. The global oil markets, according to Goldman Sachs is expected to shift to a supply deficit by the second half of next year, regardless of whether OPEC cuts oil prices or not.

“Any fiscal pain from the production cut will just be for half a year. Surely, the oil producers can live through it!” Damien Courvalin said.

Jan Stuart, from Credit Suisse, expects oil prices to trade as high as $70 a barrel if a deal is struck.

“At the least, sticking to a 33.0 Mb/d ceiling for 6-months would deepen the average annual draw by ~300 kb/d to ~500 kb/d with a good bit of that falling in H1,” Stuart says and expects oil to rise to $60 in the very short term if a production deal is reached.

Barclays: Production cut is unlikely

Analysts at Barclays, however, remain pessimistic on the OPEC meeting. Analyst Warren Russell says “An OPEC agreement is a different matter from an OPEC production cut.” The agreement, according to Russell could more likely be a “face-saving statement” without steering away too from what the nations have initially planned.

Libya, Nigeria along with Iraq are said to be exempted from the production cut, according to the information agreement reached in Algiers. With all these three countries ramping up production which could mean that OPEC nations will have to increase production cuts by nearly 50% than what was agreed.

Oil Technical Outlook

Crude oil prices have been trading flat for the past two days and within the ranges established on November 22nd. On the 60-minute chart, oil prices are currently consolidating into a descending triangle pattern with support formed at 47.47 – 47.30. If this support breaks, it will validate the descending triangle pattern that could see oil prices fall towards the next lower support at 45.40 – 45.18. Alternately, a bullish breakout from the descending triangle’s trend line could quickly see the previous minor support at 48.45 being tested for resistance with further upside expected only on a firm break above this level.

Crude oil futures, 60 min chart
Crude oil futures, 60 min chart

In the longer run, watch for oil prices to break above $50.00 psychological level following which further upside towards $61.00 could be easily achieved.

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