Oil Cutback Prospects Grow Increasingly Dim, Kilduff Speculates The Saudis Could "Produce Full Out" And Force Compliance

Monday November 28, 2016

After being accused over the weekend by Iran of reneging on his promises to limit output, Khalid al-Falih, energy minister for Saudi Arabia, on Monday told media that markets in 2017 will rebalance even without ratification of the Organization of the Petroleum Exporting Countries cutback deal, which up until now the cartel - with the kingdom's vigorous backing - assured everyone would happen on November 30.

John Kilduff, founding partner of Again Capital, told CNBC there is a chance of a rebalance very late in 2017, but he also speculated that if the deal collapses in Vienna later this week, the Saudis might "announce that they're going to produce full out and crash this price one more time to get everyone on their knees to the table."

He added that there's still a chance of success in Vienna, but he doesn't think Iran will agree to any cuts because of the possibility U.S. president-elect Donald Trump will dissolve the deal that lifted sanctions against the Islamic republic and enabled it to return to the international marketplace.

Kilduff said, "This is going to be a tortuous few days" leading up to Wednesday, and this is sentiment was echoed by Hamza Khan, head of commodities strategy at ING: "There's going to be speculation until the meeting that makes prices very difficult to predict between now and Wednesday.

"Whatever small fundamental news we get will be drowned out by the shouting from Vienna."

The doubts about OPEC's ability to get its members to agree to cuts caused Brent on Monday to drop 2 percent to under $47 per barrel, although it later gained more than 2 percent on the strength of Iraq declaring it would cooperate with OPEC to reach an agreement "accceptable to all"; it settled at $48.24 per barrel, and West Texas Intermediate settled up $1.02 at $47.08 per barrel.

Meanwhile, OPEC experts met on Monday to make recommendations to their ministers on how exactly production should be reduced; also on Monday, the oil ministers of Algeria and Venezuela flew to Moscow in a final bid to convince Russia to agree to cut output rather than just freeze it, which last week it insisted would be their only way of participating at the November 30 summit.

No details about these meetings were forthcoming, but an unnamed delegate to the OPEC meeting who had previously assured reporters that a deal would be done now told CNBC, "I am not sure," while another delegate said, "Nobody knows yet."

Last week, Abdulsamad al-Awadhi, a former OPEC official for Kuwait who is now an independent analyst, summarized the growing debacle by remarking, "The whole Algerian deal wasn't clear from beginning, and their approach was 'leave it to later'.

"OPEC leaders are confused, and the group's founding members can't solve differences, but they want to have a deal with non-OPEC; this a tough call."