Another day. Another batch of OPEC rumors.
Oil prices were flying high again until about noon New York time when they retreated on headlines that emphasized a lack of agreement from Iran, Iraq, and Indonesia on the proposed deal.
For a while this morning and yesterday it looked like the technical meeting underway ahead of the meeting of OPEC ministers on November 30 might actually produce a deal ahead of schedule. But those technical talks ended without any announcement of an agreement and it looks like OPEC will head into next week with November 30 as the make or break session.
I was going to begin my OPEC post of the day today with a reminder to buy on the rumor and sell on the news, but there are so many rumors both optimistic and pessimistic that it would be hard to follow that advice. My conviction remains that OPEC will produce a deal on November 30–and oil will rally on the initial news of the deal. But I remain equally convinced that over the days after the meeting further study of the deal will result in disappointment. In September at its meeting in Algiers OPEC outlined the possibility of a 4% to 4.5% cut in production for all members except Libya and Nigeria. (Demands from Iran and Iraq–and now today maybe Indonesia–to also win exemption from the cuts are the major stumbling block to an agreement–if you don’t count the face that the Saudis and Iraqis hate the Iranians and vice-versa.) A cut of that magnitude would result in production of 32.5 to 33 million barrels a day, not significantly different from current production from OPEC. I think that figure is about as much of a cut as we’ll see from these talks and in that case there’s a good likelihood of market disappointment even if OPEC does deliver an agreement.
Expect that the days between now and November 30 will be chock full of market moving news. (Yes, even over the Thanksgiving holiday in the United States.) One possible big event is a potential meeting (enough hedges for you?) on November 28 between OPEC and non-OPEC producers such as Russia. I’m sure we’ll get some kind of swell sounding but probably meaningless promises of cooperation out of that session. No producer outside OPEC will agree to make real cuts until it’s clear what OPEC will do.
At 2:23 New York time U.S. benchmark West Texas Intermediate was down 0.91% to $47.80 a barrel.