So where do we stand on the OPEC deal?

With a near constant stream of guessing and sources stories, what is the deal shaping up to look like?

The latest news out on the OPEC deal is that OPEC will discuss cutting output down to 32.5mbpd, according to reports on social media via @Deltaone. The latest OPEC report had them running at 33.64mbpd. That might rise to a cut of as much as 1.3mbpd. OPEC might also ask non-OPEC to cut by 500-600kbpd, and Russia by 300k.

Still, it"s all more sources chatter and speculation but from it we can roughly build what OPEC may be aiming at, and where things stand.

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  A OPEC production cut of 1.1-1.3mbpd touted (Iraq wanted 900k cut)
  
  


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  Non-OPEC 500-880k cut
  
  


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  6 month freeze for everyone probably starting in Jan
  
  


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  Libya and Nigeria exempt from cuts
  
  


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  Iran still wants to get to near 4mbpd output before freezing, OPEC proposed a freeze at around 3.6m
  
  


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  Iraq and Iran quotas unlikely to be decided until the meeting
  
  


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  Russia and other non-OPEC countries are now invited to a meeting 30th Nov
  
  

So we have a broad outline and one the market has started to price. Iraq and Iran are probably still the biggest potential flies in the ointment, and the other important thing to remember is that we still don"t know what level these cuts of freezes will be set at because everyone is using current figures. It"s fine assuming that OPEC will green light a 1.3m cut before freezing but if that"s going to happen in Jan, they might be pumping 2m more a day by then.

Overall, the deal shaping up looks far from anything that could be considered as something that would stabilise or lift the price of oil over the long-term. Six months pumping at near full pelt, while those levels still add to the surplus, isn"t going to see prices materially higher. If the world wants stable flat prices for 6 months then this deal will get it. If oil producers want the price higher because they"re still below breakeven, this ain"t the deal for that.

Outside of kneejerk moves when we do get the announcement next week, there"s not a lot here that would really have prices running to any new ranges, which is $41-45 & $51/53-54 on my charts.

Brent daily chart

Brent weekly chart

Only something way out from the above would have the possibility of doing that, and know from history that OPEC deals often fail to deliver to expectations

Throughout all these weeks of news and conjecture, the one thing I"ve always fallen back to in my thinking, is that the supply/demand dynamics haven"t changed and they still won"t by this deal, and that stops me from being bullish.

There is perhaps one outlier that might be worth considering. With sentiment rising that the US is going to suddenly jump into fiscal action and be a boon for global growth, we might find that oil has some catching up to do. If USD and bond players were holding back over the election, oil players might be doing the same ahead of the OPEC meeting. Once that risk is removed, oil may try to catch up with he rest of the commodity rally we"ve already seen. Just something to consider. 

So where do we stand on the OPEC deal?
So where do we stand on the OPEC deal?
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