oil oil oil

A nervous crude oil market awaits OPEC’s next move

Commodities 5 minutes to read
Picture of Ole Hansen
Ole Hansen

Head of Commodity Strategy

Summary:  Crude oil prices remain under pressure with the latest weakness being triggered by OPEC’s decision to delay the meeting originally planned for this weekend until November 30, potentially pointing to a discord within the group about production levels, quotas and compliance, and with that reduced expectations the group will be able to intervene and arrest the latest slide.

Weekly COT update: Crude selling slows; grains in demand

Key points

  • Crude oil trades lower after OPEC+ was forced to delay its upcoming amid a brewing discord
  • A repeat of the 2020 price war between Russia and Saudi Arabia seems extremely unlikely
  • Brent resistance at $82.40, the 200-day MA with $74, the 200-week MA providing solid support

Crude oil prices remain under pressure with the latest weakness being triggered by OPEC’s decision to delay the meeting originally planned for this weekend until November 30, potentially pointing to a discord within the group about production levels, quotas and compliance, and with that reduced expectations the group will be able to intervene and arrest the latest slide from above $90 in Brent to a recent low below $80. Saudi Arabia, having led from the front and cut production by more than 1.5 million barrels a day in 2023 will most certainly want a higher degree of compliance and potential more in terms of cuts from other members who have increased production while enjoying the higher prices achieved due to Saudi restraint.

The biggest concern but also highly unlikely development from a price stability perspective is the risk of Saudi Arabia dialling back its unilateral production cuts, a development that given the current demand softness and rising non-OPEC production would bring back memories of what happened to oil prices during pandemic hit H1-2020, when Russia refused to join Saudi-led efforts to stem the price through production cuts. Saudi Arabia started a temporary and very ill-timed price war with Russia that saw its production jump 1.6 mb/d while Brent crude slumped below $20 a barrel. Fast forward and Saudi Arabia are once facing lower prices and little help from its 'friends' to curb production at a time where non-OPEC supply in the coming two years look set to outpace growth in global demand, thereby forcing restraint from OPEC in order to protect prices. 

While the temperature ahead of the meeting has been raised significantly, none of the producers will risk a public discord potentially sending prices even lower, and with that in mind we expect an agreement will be reached, mostly focusing on compliance to quotas and accountability on reported baseline capacity. While Saudi Arabia is likely to extend its current unilateral production cuts until the end of Q2 next year, they are most likely not willing to make any additional cuts, so much will depend on the behaviour of members like Iran who have been flooding the market with oil from increased production and from storage, and Russia who have struggled to deliver their promised cut. The UAE is potential another point of contention given their plans to raise production next year at the expense of African producers, Angola and Nigeria, who have been forced to accept lower quotas after not reaching their levels for many months. 

According to the latest COT (Commitment Of Traders) data from the CFTC (Commodity Futures Trading Commission) and ICE Exchange Europe covering the week to November 14, Brent and WTI crude oil futures have seen almost uninterrupted selling from hedge funds since the net long hit a near two-year peak on September 19. Since then, the combined long has slumped by 44% to a four-month low at 295k contracts, potentially leaving the market increasingly exposed to news that triggers a rebound.
Following the November 7 slump, Brent crude oil has struggled to break back above the 200-day moving average, last at $82.36, while buyers have continued to emerge below $80 with the 200-week moving average, currently at $74 being the major defence line which has provided support on several occasions during the first half. Source: Saxo


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