ECM OPEC Speculation Continues To Dominate Oil Futures
After falling sharply on Friday following reports that Saudi Arabia considered this week’s talks to be consultative only, there was tentative recovery on Monday as underlying volatility continued.
There was further high volatility in oil markets on Friday as reports and rumours surrounding this week’s scheduled meeting of OPEC countries continued to swirl around markets. From highs above $46.0 p/b in November WTI futures, there was a sharp slide to lows just below $44.50.
During the US session, there were reports that Saudi Arabia saw the talks as a consultation and did not expect a decision to be made in the Algerian talks this week.
There was also a report that Saudi Arabia would back an oil production cut of 1mn barrels per day if Iran agreed to curb production. Russian officials indicated that they would join the discussion if OPEC members managed to secure a deal.
The net effect of the Saudi comments was to undermine expectations that there would be any formal arrangement to reach a deal, which put considerable downward pressure on prices.
The latest Baker Hughes data recorded an increase in North American drilling rigs to 511 in the latest week from 506 previously with the oil count rising to 418 from 416.
The latest CFTC data recorded a sharp underlying shift in positioning with the largest weekly addition of short non-commercial positions on record and the lowest net long position for over a month.
Away from the OPEC talks, a stronger than expected German IFO report at the highest level since May 2014 should boost optimism surrounding global oil demand.
There was still generally positive rhetoric from the Algerian oil minister with comments that all options were possible, although there was still a high degree of uncertainty, especially with mixed and contradictory rhetoric from officials.
A generally subdued dollar provided some net protection to crude prices on Monday, although generally weak risk appetite tended to have the opposite effect. After finding support close to $44.50, there was a rally back above 45.00 p/b as choppy conditions persisted.
Rhetoric surrounding this Wednesday’s scheduled OPEC talks will continue to have an important market impact and there is unlikely to be any easing of short-term volatility.
