OPEC: Cuts And Stuff
Oil prices rebounded on reports that OPEC and non-OPEC nations will announce a deal this weekend to reduce oil output by 4%. This caused oil to climb back above $50 but failed to stay there as the dollar continued its epic strength and some concerns about the health of the global economy. Even renewed talk of inflation gave gold a bounce along with physical buying into the Indian Festival Season. Today traders will look to big oil earnings and their guidance to find out if big oil believes that higher prices in oil are here to stay. Also, that Baker Huges rig count will be watched as the publisher of that report is being eyed by GE as takeover target or perhaps a partnership. Big deals in the space is another sign that the downward cycle in oil is getting close to a long-term bottom.
OPEC has been full of surprises despite skepticism that a deal would get done and they could give details this weekend. Reports surfaced that Saudi and Gulf OPEC allies would cut portion by 4% was a reason to buy. Today OPEC will hold a technical meeting and tomorrow OPEC will meet with non-OPEC producers Azerbaijan, Kazakhstan, Oman, Egypt, Bahrain, Colombia, Mexico, Trinidad and Tobago, Bolivia, Norway and Canada. You might not want to be short over the weekend as we may see a price spike after a final deal is announced. The spike will come not because of the size of the announced cut but because there are still too many people in denial that this deal is actually happening.
Saudi Arabia and Russia will make this happen because the Saudis want a deal and Russia wants to grow closer to and do more business with Saudi Arabia. The Russians and Saudis want to cooperate on a number of fronts so revenue lost by Russia on a production cut will be made in other areas. Russian oil minister Alexander Novak said that cooperation opportunities between Russia and Saudi Arabia are wide and vital, adding that there are more than 20 products by which Moscow can do business with Riyadh to reinforce their future cooperation, expecting a remarkable progress in the economic relations between the two countries as reported by Reuters. So you will miss the point if you just focus on oil revenue. You have to look at the motivations between the two countries that will have to do the most to make this production agreement work.
November natural gas went out tanking but December natural gas may have hit bottom. Increased production and warm weather has been priced in. The key for the size of the rebound may depend on the weather the last part of November.
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