Saudi Arabia opened doors to no oil production cuts on Sunday as we head into the all-important OPEC meeting in Vienna this Wednesday.
That the oil market will re-balance in 2017 is a view Goldman Sachs takes. The bank last week turned “tactically bullish” on oil: “Oil: Why Goldman Is Now “Tactically Bullish””
“At the moment, the impending OPEC meeting is on top of the mind of investors,” said Gary Huxtable, client advisor at Atlantic Pacific Securities, adding, “with Saudi Arabia communicating to the market that they were somewhat bullish about a pickup in demand throughout 2017, they have essentially prepared a market non-agreement decision last Wednesday night.”
Brent crude futures fell 1.5% this morning to $47.53 and WTI crude fell 1.4% to $45.40 per barrel. On Friday, Brent tumbled 3.6% on Friday after Saudi Arabia decided not to go to a meeting with non-OPEC producers including Russia that is scheduled for Monday.
In a note to clients this morning, Morgan Stanley said it still expects a paper agreement to come out of the OPEC meeting. The bank wrote:
OPEC. We were concerned that consensus had moved towards fully pricing in an OPEC deal on Nov 30 late last week. However, a sell off on Saudi Arabia cancelling its meeting with Russia may setup a more interesting tactical long opportunity with oil back at its mid trading range price. Cancelling a meeting with non-OPEC producers highlights the disagreements that remain within OPEC, but we still see at least a paper deal headline agreement as the most likely outcome. A strong announcement from OPEC to cut meaningfully (especially towards 32.5 mmb/d) could lift oil $5/bbl or more over the following days (as Algiers did), particularly if supported by strong words from non-OPEC, before focus shifts to execution risk, sustainability and any non-OPEC supply response.
Commodity analysts’ expectations are not high: “Oil: Why An OPEC Production Cut Is Unlikely“.
Australia’s oil producers tumbled this morning. Santos (STO.Australia) fell 2.3%, Woodside Petroleum (WPL.Australia) dropped 2.2%, Oil Search (OSH.Australia) was down 2%, BHP Billiton (BHP) fell 1.8%. On Friday, the United States Oil Fund (USO) fell 3.2%.
As risk aversion grips Asia, the Japanese yen strengthened 0.6% to 112.49 per dollar. The Nikkei 225 fell 0.6%.