Anyone hoping for stability in the oil price will be cursing OPEC’s preliminary announcement of a production cut in late September as it has paved the way for endless speculation and volatility running into this Wednesday’s (30 Nov) official summit in Vienna.
The latest shift in expectations is towards a more sceptical outlook and this drags Brent crude down 1% to $46.78. BP (BP.) and Royal Dutch Shell (RDSB) respond with falls of 1.4% to 448.6p and 1.6% to £20.76 respectively. Premier Oil (PMO), highly leveraged to oil thanks to a substantial debt pile, sinks 3.4% to 51.7p.
HOPES SUNK
What is behind this latest shift? Spreadex analyst Connor Campbell explains: ‘Hopes for an output deal have once again sunk after Saudi Arabia pulled out of a meeting with non-OPEC members, with the country also suggesting that since it expects ‘demand to recover in 2017’ a cut may not be needed.’
We discussed three scenarios for the meeting here. Investment bank UBS has helpfully provided its thoughts on the likely price action based on different outcomes.
‘A credible agreement will likely reset oil for the winter at >$50/bbl, effectively lifting the floor. Conversely, an April-16 Doha-style breakdown in talks should not be ruled out and might well see $40/bbl being tested.’
