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Oil: OPEC painted into a corner - TDS

Crude oil recorded a spectacular run since hitting lows back in June as Brent rallied some 43 percent to $63.50/bbl, while WTI is up roughly 40 percent to as high as $59.05/bbl, notes the research team at TDS.

Key Quotes

“Aside from recent Canadian pipeline disruptions, geopolitical risks, some disappointment surrounding US drilling activity and firm demand growth, much of the price increase can be directly traced back to unambiguous market expectations that OPEC/ Russia will extend the current supply restrictions beyond March 2018.”

“However, based on signals coming from Russia, a fully unqualified commitment to extend the current restrictive production regime for all of 2018 may not materialize at the November 30th Vienna meetings. Despite a very sharp decline in US inventories over the last several months, unusually strong global demand and emerging doubts that shale production will continue to surge next year, OPEC/Russian production discipline needs to be extended for all of 2018 in order for the oil market not to tilt back into a large surplus.”

“To the extent that the oil market is currently priced for "perfection" from the OPEC meeting — an unqualified commitment to keep the current production restrictions until the end of 2018 — any waffling on the part of OPEC/Russia to extend supply restrictions will likely prompt investors to take in profits. Indeed, Russia is said to want the extension deal to include new wording that would link the size of the curbs to the health of the oil market. As such, it would not be a surprise to see WTI trend down toward support after the meeting, before breaking out to the upside again as 2018 unfolds.”

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