The OPEC meeting is on in Vienna this week; we discuss the latest news with Gaurav Sharma, Business Editor for the International Business Times UK. At the moment, the market seems bullish. When discussing the OPEC cut, Gaurav thinks that they will extend their rollover of 1.8 million barrels per day. He believes that this is driving much of the market sentiment.
On the balance of probability there is a 90% chance of OPEC extending the rollover. Gaurav tells us that there are two clear reasons why . 1 – The rally is going well and OPEC will want to keep the bullish trend going. 2 – The absence of an exit strategy. The oil price is already reflecting the likely extensions. We have touched 2 year highs, and now Brent is at 63, whilst WTI is 58.
If the Russians are playing ball, it seems as though there is harmony in OPEC. Will that continue? The current cut is in place until March 2018. Expected to rollover for 6 to 12 months. If that is the case then it can be seen as OPEC just kicking the can down the road. Will OPEC decide that they have cut enough? Or will somebody break protocol? Ecuador already not following protocol, and there is a suggestion that Iraq is also quota busting.
Will it return to the previous level of 33 millions barrels per day? According to the most recent Baker Hughes rig count; US rigs are at 923 (up 8), Canadian rigs 215 (up 7), International rigs up also. The market has responded to this and is looking bullish. However the market fundamentals haven’t materially altered for 2018.
Even if the oil price hits 70 by Christmas, the issue is that the average price will still be in the 55 – 60 range. Next year will not see a dramatic change. We already know where the centres for oil usage are, so it seems like we will see more non OPEC oil, or will OPEC put more in? When you look at who is buying in to the rally, it seems to be a lot of money managers jumping in to see if the rally will last. But they are going long based on daily news flow.
Gaurav does not think the rally will maintain. There are plenty of production supply centres that the rally seems to ignore. If the fundamentals haven’t realistically altered and the money managers are in speculatively. Then this rally will not last.
You can see from Gaurav on Core by clicking here.