Oil prices steady near year lows ahead of G20, OPEC meeting

Ivan Schwartz
November 29, 2018

According to analysts from TDS, crude oil has joined industrial metals in reflecting a micro-macro dichotomy, as sour market sentiment keep prices below fundamentally determined levels.

On Monday, oil prices rose slightly in volatile trading, as crude inventories reportedly fell and European Union (EU) supported France's decision to sanction Iran over security concerns. As the price started declining back in 2014, the US production declined from 9.61 million barrels per day in the summer of 2015 to 8.43 million barrels per day by the summer of 2016.

At the same time, crude stocks have now climbed for eight consecutive weeks, surely a sign that the market is decidedly back in a surplus situation.

Oil prices dipped on Tuesday, weighed down by uncertainty over the U.S.

But it also significantly increases the odds of a response from the OPEC+ coalition in early December.

"That might make it more hard for [OPEC] to cut production", Essner said. "The market is now looking for a potential repeat", Hansen said. "T$3 he oil market is a lot cleaner now from a positioning standpoint". Low-priced non-Opec supply growth should put a cap on oil prices in the absence of any large-scale geopolitical disruption. That leaves a one-third chance of OPEC leaving things as is.

"We suspect that producers will start to withhold exports in the coming months, putting a floor under prices", Capital Economics said.

Oil markets have also been weighed down by the strong USA -dollar.DXY., which has surged against most other currencies this year, thanks to rising interest rates that have pulled investor money out of other currencies and also assets like oil, which are seen as more risky than the greenback. Less supply should give a lift to prices.

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Trump, via Twitter, has voiced opposition against cutting oil production by Saudi Arabia and OPEC, saying, "oil prices should be much lower based on supply".

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"At the G20 meeting in September 2016 Saudi Arabia and Russian Federation took their first steps towards cooperation in order to support the oil price".

The International Energy Agency predicts global oil demand will top 100 million barrels a year in 2019, growing at a rate of 1.4 million barrels per day, but this is down from its initial assessment in June of 1.5 million bpd.

These rumors tend to drive the market and the price gains seen on Thursday and Friday may have been somewhat driven by rising expectations of OPEC+ action.

"It's most likely that Saudi Arabia will manage again to convince the OPEC ministers that production should be [cut]. but the negotiations and considerations this time will be [the most] challenging in a long time". Because there are now rumors of a cut as large as 1.4 mb/d, the 1 mb/d option could take on a "middle-of-the-road" option.

Oil closed a volatile day back in negative territory. "This will be necessary to avoid severe oversupply in 2019".

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