In the week since our last edition of What’s Affecting Oil Prices, Brent prices fell $0.27/bbl to average $75.69/bbl while WTI actually saw some recovery, up $0.87/bbl to average $66.21/bbl. This week we expect Brent trading to be especially choppy in the lead-up to the OPEC meeting as the usual flow of rumors is pounced upon by traders.

If OPEC agrees to continue the production agreement with no discussion of lifting volumes or winding down the program over the next six months we expect prices to fall, potentially very sharply to average closer to $70/bbl. If OPEC agrees to lift production immediately or comes out with a strong plan to wind down the production agreement over the next six month, prices will keep much of their recent strength, likely averaging closer to $76/bbl.

Several American oil executives are expected to speak with OPEC members in Vienna throughout the week. However, this openness to discuss oil market dynamics should not be interpreted as a willingness by U.S. producers to coordinate production with OPEC. Much of the commentary from OPEC members and meeting participants is going to be around the future of global oil demand and the pace of U.S. supply growth. Also of interest will be tensions between Iran and Saudi Arabia, with OPEC already rejecting Iran’s request to discuss recent U.S. sanctions as part of the official agenda. Given the sanctions, Iran is likely to protest any production level or deal that it views as overly benefitting U.S. producers or Saudi Arabia.

Geopolitical: Neutral

Geopolitics will be a neutral factor in the week ahead as markets remain focused on the practical outcomes of the upcoming OPEC meeting.

Dollar: Neutral

The dollar will be a neutral factor in the week ahead as fundamental and sentiment-related drivers continue to have more impact on crude oil prices.

Trader Sentiment: Neutral

Trader sentiment will be a driving factor in the week ahead. However, whether it is positive or negative will depend on how traders interpret the outcome of the upcoming OPEC meeting.

Supply: Positive

Supply will likely be a marginally positive factor in the week ahead with Venezuelan and Iranian volumes both constrained. However, any hopes of supply constraints will be moderated by concerns that OPEC’s supply deal will soon dissolve.

Demand: Negative

Demand will be a negative factor in the week ahead as rising prices cause greater concern from local governments about demand destruction.

Refining: Neutral

Refining will be a neutral factor in the week ahead although margins have improved slightly in some enclaves as crude prices have fallen.

How We Did

Comments