US Election, Not OPEC Deal, is Driving Down Oil Prices: NBAD Securities

Mohammed Ali Yasin believes the proposed OPEC output deal is not as influential on prices as the US election.

Mohammed Ali Yasin, managing director at National Bank of Abu Dhabi Securities, says market anxiety and price volatility is not so much related to the impending Vienna meeting of the Organization of the Petroleum Exporting Countries (OPEC) to further discuss their loose production cutback plan as it is a reaction to the upcoming U.S. presidential elections.

Speaking on Bloomberg Market: Middle East, Ali Yasin said tension over who will take the White House is to blame for the bond markets sell off, and he doubts that if OPEC had ratified their agreement five days ago there would be a rise in oil prices: "I think my answer would be no, because I think there's a risk attitude with many of the investors now, and a lot of that is coming out."

However, he stressed that oil is still trading at "an acceptable level" and "none of the fundamentals have changed" – all of which leads him to believe that a market with prices at the $50 level "could continue for a year or two," especially considering producers are budgeting for that possible outcome.

While Ali Yasin appeared indifferent about the outcome of the OPEC deal, noting that everyone has to sign onto it before a cutback takes place, he seemed more focused on whether Democratic hopeful Hillary Clinton or Republican leader Donald Trump will be the victor on November 8, and what effect this will have on investors, whom he described as currently "staying on the outside."

He said, "I think if you get a Clinton win we may see relief," and he conceded that if Trump wins there could be a 15 percent market drop, but only "initially."

While concern over the elections may play a role in market volatility, most analysts are blaming a record weekly build in U.S. crude inventories for Wednesday's 3 percent tumble of oil prices: the U.S. Energy Information Administration reported crude inventories rising 14.4 million barrels for the week ended October 28.

This is far more than the 10 million barrels analysts had expected, and it's also the biggest weekly rise in U.S. crude stocks since records began in 1982.

Those who pay more attention to fundamentals than to politics were appalled by the numbers: James L. Williams, energy economist for WTRG Economics, said, "This is very, very, very bearish; nothing else in the report matters."

Meanwhile, Brian Jacobsen, chief portfolio strategist for Wells Fargo Funds Management, told Bloomberg that if there's a complete failure on the part of OPEC members to ratify a production cutback deal, oil prices may fall below $40 per barrel - echoing similar sentiment from some fellow analysts earlier this week.

For the time being, he said, oil prices "are moving up, they're moving down, all based upon projected outcomes of whether or not they'll have some sort of production freeze agreement." 
  
Tossing his hat into the ring of skeptics who doubt things will go well when the members meet in Vienna later this month, Jacobsen said they "aren't exactly forthright about what [amounts] they're producing let alone being honest about whether they're cutting or freezing production."

However, he also sees a collapse in talks and its effect on the market as "a good buying opportunity."

Earlier this week, both Goldman Sachs Group Inc. and RBC Capital Markets also speculated that if the cutback deal goes south, so too will oil prices, with Goldman analyst Damien Courvalin targeting prices in the low $40s.