Oil Down 22% in November as Analysis Argue Crude Could Go Up or Down From Here

Friday November 30, 2018

Crude prices continued their downward spiral on Friday, with Brent falling 80 cents to settle at $58.71 per barrel,  and West Texas Intermediate dropping 52 cents to $50.93 per barrel, the outcome of ongoing worries about global surplus production as well as a strong U.S. dollar.

However, crude dipped below $50 during the trading day, so the settlements also represent a rebound based on guarded optimism after the Organization of the Petroleum Exporting Countries' (OPEC) advisory committee suggested decreasing production by 1.3 million barrels per day (bpd) from last month's levels.

Still, Friday's trading contributed to crude plunging 22 percent in November, the weakest month in over 10 years.

As usual, analysts weighed in on where oil will go next - and also predictable was a complete lack of cohesion in their forecasts: Peter Kraus, CEO and chairman of Aperture Investors, told CNBC that "I think oil at a low price is stimulative to the economy, I think it's something that has been positive."

He added that oil at $50 "Is a positive signal for inflation, it's a positive signal for the cost of production, [but] it's a negative signal to future demand."

Timothy Adams, CEO and president of The Institute of International Finance, said oil below $50 will have a negative effect on the energy sector....but we'll see what OPEC winds up doing."

By contrast, Alli McCartney, managing director of UBS, stated, "Oil is a really interesting temporary phenomenon right now; we at UBS see a six month and 12 month horizon at about $85," thanks to surmounting current "artificial restrictions" such as "Iran, Saudi Arabia, Russia production."

All eyes are now focused on the G-20 summit in Argentina, where the world's three biggest oil producers will gather in a prelude to the OPEC meeting next week in Vienna; Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas, remarked, "You're going to have a ballet and concert of various statements that are either contradictory or reinforcing leading up to the OPEC meeting; it's the kind of to-and-fro that creates volatility because people's expectations can't be anchored."

Stephen Brennock, analyst at PVM Oil Associates, reminded optimists that "As things stand, the Russians and Saudis are still far from being on the same page over the finer details of looming output restrictions."

Indeed, Tamar Essner, director of energy and utilities at Nasdaq Corporate Solutions, predicted that the meeting will end with an official statement that obfuscates just how many barrels OPEC intends to take off the market: "You'll have to figure out the cuts from baseline levels; I don't think it will be necessarily all that clear based on the statements."

And if the meeting falls apart completely, John Kilduff, founding partner at Again Capital, warned that "you could see prices rapidly fall down to potential support down to $42."

The cause for concern over what will happen in Vienna is understandable, considering that despite overwhelming analytical expectations that a cut will be agreed upon, the Saudis earlier this week sent the ominous signal that they would be willing to slash production - but only if it's unilateral.