Citibank Again Warns OPEC Supporters to Brace for Disappointment in Vienna

by Ship & Bunker News Team
Friday November 10, 2017

Ed Morse, global head of commodities research at Citigroup, on Thursday repeated his message of earlier this week that the vast majority of analysts who have put their faith in the Organization of the Petroleum Exporting Countries (OPEC) announcing an extension to its crude production cutback initiative are in store for a shock.

He told Bloomberg television that "The market is believing, by and large, that when OPEC meets in November 30 they're going to extend their production cuts until the end of 2018, and I think that's just not likely to be the case; so whether they don't extend and have a postponed meeting for January or February and reassess the situation, or whether they just do another quarter of an agreement on the cuts through the first half of the year, I think the market will be pretty disappointed...as they have been with every OPEC meeting in recent years."

Morse went on to say that "We think the most likely scenario is that they [OPEC] are going to be pushing back the decision to the middle of Q1....(and) the downside for oil is a lot more production in the U.S.: you get to a $65 price, and that's a lot of new hedging."

As for the rising tensions between Saudi Arabia and Iran affecting the agreement, Morse suggested that it is a non issue because both parties support the extension and want to see oil prices climb higher.

He added that generally speaking, "the market has overdone it; there are a lot of geopolitical risks, and the geopolitical risk is in the price, and the technicals were responsible for a lot of momentum."

Goldman Sachs Group Inc. also has concerns about what may happen at the OPEC meeting in Vienna on November 30: specifically, it is worried the Saudi anti-graft sweep that caused a massive surge in prices earlier this week might overshadow the meeting, causing a non-committal outcome that, combined with accelerated drilling in the U.S., could push prices lower.

On the other hand, Goldman conceded that escalating geopolitical tensions could lead to another large rally.

But the analytical hand-wringing had little effect on market performance Thursday: West Texas Intermediate settled up 46 cents to $57.27 per barrel, and Brent rose 44 cents to $63.93.

Several unnamed traders told Reuters the prices got a boost from unconfirmed rumors that Saudi King Salman would relinquish the throne to his son, Crown Prince Mohammed Bin Salman.

Prices were also reportedly supported by Saudi Arabia planing to cut crude exports by 120,000 barrels per day in December from November, slashing allocations to all regions.

However, Greg McKenna, chief market strategist at brokerage AxiTrader, cautioned that "It doesn't matter how bullish the fundamentals are ... when an asset goes vertical there is always room for a pullback and consolidation of recent price moves."

Earlier this week, Morse suggested that the likelihood of OPEC not announcing a full extension of its production cuts is probably not a big deal, because rising U.S. production would render any cutbacks ineffective anyway.