Oil Markets are "Going to be Volatile for Sure" as OPEC/Non-OPEC Meeting Approaches

Volatility seems to be the new norm.

In the shadow of an impending meeting between members of the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC members to discuss freezing oil output, volatility may be the new market norm.

Recent activities certainly support this contention, with concern over the global oil supply Tuesday causing Brent to fall 3 percent, breaking a six-day rally after hitting 2016 highs above $40.

But then crude buying returned Wednesday with a 3.4 percent jump for Brent to $41.01 per barrel, as talk of the OPEC meeting and possible subsequent action – which has caused oil prices overall to rise by about 25 percent – gained momentum.

In predicting Wednesday's activity earlier that day, Scott Shelton, energy broker at ICAP, remarked, "It's going to be volatile for sure."

Bunker prices have been similarly volatile; Ship & Bunker data for Singapore, for example, shows key grade IFO380 has gained just $9 per metric tonne over the last month, but has had a spread of $30.50 in that time, which represents about 17 percent of Wednesday's average price of $177.50 pmt.

However there seems to be uncertainty about the specifics of the when, and where, the supposed oil producers meeting will take place.

An Iraqi oil official was quoted by a state newspaper saying that OPEC and non-OPEC producers will meet in Moscow on March 20 - even though Russia's energy ministry has publicly stated that no date or place had been set.

Taking a longer view of the situation, Wood Mackenzie believes the annual average price for 2016 will "be lower than 2015 and then recover in 2017, reflecting large oversupply and high stock levels during the first half of 2016."

To which Olivier Jakob, managing director for Petromatrix, adds, "The consensus is for supply and demand to improve in the second half of the year; the problem was always with the first half .... which is heavy.

"If there is a freeze agreement of some sort, then it could (form) the bridge to the tighter supply/demand balance in the second half, so I think that has definitely helped to support prices."

Ironically, many analysts doubt the talks will have much impact on the oil market, and Francisco Quintana, head of economic research at Asiya Investment, said a wide-ranging agreement is "unlikely, due to Iran's reluctance but also because of the deteriorating relation between Saudi and Russia; but even if it happened, its impact in the market would be marginal."