Oil Price Analysis and News
- Cataclysmic Drop in Oil Prices Sparks Need for Action
- Baseline Case: OPEC and Non-OPEC to Agree Cut
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OPEC and Non-OPEC ministers will convene on December 6th for the 175th OPEC and 5th non-OPEC ministerial meeting. Heading into the meeting, the consensus is for OPEC and Non-OPEC members to agree a production cut to stabilize prices.
Oil Plunge as Saudi Energy Minister Risk Threat of No Cut
Crude oil prices renewed its sell-off with Brent breaking below $60/bbl as the Saudi Arabian Energy Minister stated that all options are on the table including a no-deal. Alongside this, Al-Falih highlighted that they would be prepared for a no-deal, subsequently raising the risk that OPEC may fail to reach an agreement to cut production. However, as is typically the case when OPEC meet, headline risk for oil is elevated. While there hasn’t been an agreement “yet”, the base case is for OPEC+ to reach an agreement to stabilize the energy complex.
Baseline Case: OPEC and Non-OPEC to Agree Cut
The general consensus is that OPEC and Non-OPEC will agree to cut output from anywhere between 1-1.5mbpd, particularly as oil heavyweights Saudi Arabia and Russia have both stated that they see a need to act to prevent a supply glut. The question is, by how much?
OPEC source reports noted that oil producers had been working towards a minimum output cut of 1mbpd-1.3mbpd from October levels (33.27mbpd). However, it added that Russia’s stance on how much they would contribute to the cuts had been the main obstacle (prefer to cut by 150kbpd vs 250-300kbpd).
Potential Scenarios
No Cut: Failure for OPEC and Non-OPEC members to reach an agreement could see oil prices fall sharply with Brent potentially breaking below the YTD lows to hover around the region of $55.
1mbpd Cut: This would be the bare to minimum to help ease the recent sell-off in oil prices, while this would also be the reversal of the 1mbpd boost in oil production by Russia and Saudi Arabia back in September.
1.3-1.5mbpd Cut: Forecasts have suggested that anything less than a cut of 1.3-1.5mbpd would likely lead to an increase in global oil inventories in H1 2019. This would undoubtedly have the most bullish impact on prices, however, a sizeable cut would need the involvement of Russia and is likely to be highly criticized by President Trump.
Recent Commentary from Oil Ministers(Updated December 6th)
| Country | Comment |
|---|---|
| Saudi Arabia | 1mbpd cut for OPEC+ would be enough, adds that if everyone is not willing to cut now, then will wait until they are. (Dec 6th) |
| Russia | There will be a decision on whether to cut oil output (Nov 30th) |
| Iraq | Will follow any decision by OPEC (Dec 6th) |
| UAE | There is a requirement for an adjustment in oil production, adds that it is important for everyone to get on board (Dec 4th) |
| Iran | Will not join any deal to cut output until sanctions are lifted, adds that Iran needs to be exempt (Dec 6th) |
| Kuwait | Will discuss market conditions and how to stabilize oil markets (Dec 4th) |
| Nigeria | OPEC+ countries considering cut of 1mbpd (Dec 6th) |
| Angola | No recent commentary |
| Venezuela | Hoping to raise output next year but will respect any new deal if OPEC agrees to reduce output from December (Nov 11th) |
| Libya | No recent commentary |
| Algeria | No recent commentary |
| Ecuador | Would support an OPEC production cut (Nov 26th) |
Oil Impact on FX
Net Oil Importers: These countries tend to be worse off when the price of oil rises. This includes, KRW, ZAR, INR, TRY, EUR, CNY, IDR, JPY
Net Oil Exporters: These counties tend to benefit when the price of oil rises. This includes RUB, CAD, MXN, NOK.
--- Written by Justin McQueen, Market Analyst
To contact Justin, email him at Justin.mcqueen@ig.com
Follow Justin on Twitter @JMcQueenFX
