(+) Will OPEC Cut Deeper?

Vienna Meeting

The eyes of the oil market are focused on Vienna this week as the JMMC (Joint Ministerial Monitoring Committee) is set to hold its 51st meeting on Sunday, November 26^th. The question the market is pondering is whether OPEC will cut production further. When OPEC+ members gather on Sunday to discuss production policy, market-insiders claim that the delegation has placed the discussion of new, deeper production cuts high on the agenda. The Q4 deficits the market expected has by the looks of it dwindle away, and there seems to be ample supply going in the new year and Q1. Therefor it’s not certain a rollover is enough to balance supply and demand. We`re talking about January supply quotas, with delivery into the spring months with possibility of a weaker demand scenario. Saudi Arabia seems determined to protect the oil price and has previously shown a willingness to go to great lengths to keep the price elevated.

Short Sellers, Beware of the Prince

Traders need to consider that the geopolitical unrest can turn the outlook upside down overnight. If the conflict spreads to more countries, it will affect the market. On the macroeconomic side, positive news of global inflation and central banks easing rates could help lift the oil price. Traders needs to be careful with their short positions in the week leading up to the OPEC meeting in Vienna. Saudi Arabia`s Energy Minister Prince Abdulaziz bin Salman have previously inflicted pain on short sellers and warned them prior to the June 4^th OPEC meeting this summer.

Will OPEC Cut Deeper?

GE Briefings do not believe there is a setting for new cuts immediately in the upcoming November meeting, but should deeper cuts be the case, then other major OPEC producers must take their share of the cuts. Saudi Arabia has gone to great lengths to protect the price, and the fear of losing market share is definitely on their minds, now that one of the founding OPEC members, Venezuela have barrels online after the sanction relief. Other producing countries like, the US, Brazil and Norway could pick up OPEC production cuts. Without knowing what the winter demand will look like, we believe OPEC are content with the rollover cuts, but we expect that the delegation will have a hawkish tone, showing willingness to cut deeper should they deem it necessary.

All things equal, we expect Brent price in the range of $80 – $85/bbl in this week, front month contract closing Friday between $83,5 – $84/bbl.

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