Originally published by AxiTrader
Actions speak louder than words. And traders in Asia this morning have followed the lead of their counterparts in North America and marked down the price of crude oil even further as fear grow that all the talk from OPEC and Saudi Arabia is just that - talk.
On Friday Crude Oil fell around 4% after news broke that the Saudis are not going to attend tonight's catch up between OPEC and non-OPEC members in Vienna. Rather sources told Reuters the Saudis believe that OPEC needs to get its own house in order before it starts making deals with outsiders.
Reuters also reported a Gulf source familiar with Saudi oil thinking said on Friday “We have to solve our problems as OPEC first. We have not achieved an agreement within OPEC".
It's hard to misunderstand that message. OPEC is yet to agree on a deal and the Saudis are holding firm to their rhetoric that killed any chance of midyear deal when they said everyone should be taking part.
Leaving aside the fact that their old sparring partner Iran said over the weekend the cartel is moving toward a deal, comments from Saudi oil minister Khalid al-Falih on Sunday suggest the Saudis might be losing patience with OPEC once again.
Just last week al-Falih said OEPC needed to get production down toward the bottom of the 32.5 - 33.0 million barrels per day that was agreed at September's OPEC meeting in Algiers. But Sunday al-Falih told reporters that even if OPEC did not intervene the oil market would still balance itself out in 2017.
"We expect the level of demand to be encouraging in 2017, and the market will reach balance in 2017 even if there is no intervention by OPEC. But OPEC intervention aims to expedite this balance and the market recovery at a faster pace," al-Falih said.
That's not inconsistent with what he has said numerous times.
But what's important, in shifting the Saudis position and perhaps any chance of an actual production cut is his comment - harking back to the discussions pre-Algiers - is that a freeze is all that's needed.
Al-Falih said, "I don't think that we have one path only in OPEC meetings, which is cutting production - I think maintaining production at current levels is justifiable, taking into consideration the recovery of consumption and growth in developing markets and the United States".
Now I hold a strong view, a very strong view, that the fiscal imperative of the budget and income/expenditure situation of the Saudis together with many other OPEC and non-OPEC nations means a deal will get done. Indeed needs to be done to get prices back toward the $55-60 region OPEC seems to be targeting.
But if the Saudis have indeed given up on any chance of a production cut because a deal is unlikely than al-Falih's attempted sales job Sunday has failed to lift prices. Indeed prices in Asia are lower.
It's only a couple of days before the question of deal or no deal is answered at the November 30 meeting. But the result is fundamental to the price of crude in the months ahead.
It looks like OPEC is about to snatch defeat from the doors of victory.
I’m still betting that the cartel does indeed get a deal done at Wednesday night’s meeting. IT’s a much less strongly held view given the seeming lack of consensus so close to the actual meeting. But for me the prospects of this deal getting done remain anchored in the need to improve the fiscal situation and budget balances of OPEC, and non-OPEC, members alike.
If no deal is done $42.50 would be the first stop but the chances of a run below $40 would be high. On the top side the $47.80/48.50 region is near term resistance but a break topside could see WTI head toward the recent high around $52.53.
Here's the chart - the box represents resistance.
Have a great day's trading