Oil Prices and News

November's OPEC meeting is live but don't bet on a big $50-plus breakout

Nothing will come out of OPEC meet: Investor
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Nothing will come out of OPEC meet: Investor

Kicking a production freeze deal down the road was probably the best oil bulls could hope for after OPEC failed to reach a consensus in Algiers, strategists told CNBC.

"I see these current negotiations as trying to set a framework for future discussions that might yield fruit in a tangible freeze or even cuts in November or next year," Robin Mills, a Dubai-based oil industry analyst and CEO of Qamar Energy, said.

De facto OPEC leader Saudi Arabia has made it clear November could be a "live" meeting. Khalid al-Falih, the Kingdom's highly influential energy minister, hinted very strongly on Tuesday that OPEC may go a step further in November and discuss a production cut - something he said wouldn't happen at the Algiers gathering.

"We need a gentle adjustment to reassure the market," The Wall Street Journal quoted Falih as saying.

But many OPEC watchers remained dismissive of suggestions the group would ever be cohesive enough to push through real supply cuts and stick to them.

"OPEC needs a gimmick to raise prices to over $50," Fereidun Fesharaki, chairman of energy consultancy FGE, told CNBC.

Saudi Oil Minister Khaled al-Falih at 15th International Energy Forum in Algiers on September 27. An informal OPEC meeting was held on the sidelines of the forum in Algeria.
Billal Bensalem | NurPhoto | Getty Images

Any traction in the oil price based on hopes of a November deal would likely be limited in scope, Ole Hansen, Saxo Bank's head of commodity research, cautioned, adding, "A commitment to reconvene is something we have heard several times before."

Hansen said OPEC was fighting battles not only within its own ranks but against a sticky supply overhang and a resilient U.S. shale patch.

"Considering the signs that demand growth is fading, U.S. production is stabilizing and Libya and Nigeria are both increasing production, these developments will make it very hard to keep the oil bears locked up for longer," he said.

The key dilemma for OPEC has been how supply cuts were divided up and, ultimately, who did the heavy lifting. Cuts or a freeze have proved a very tough sell as every major producer tries to monetize every barrel of oil possible in the continuing battle for market share. Add to that the age-old problem of enforcing supply discipline, in which commitments may appear strong on paper but prove porous in practice.


OPEC is aware it has to play its cards well: Analyst
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OPEC is aware it has to play its cards well: Analyst

However, Saudi Arabia and Iran - the two major warring houses in oil market's "Game of Thrones" - may be more inclined to take some barrels out of the saturated market by November.

Seasonal shifts in Saudi Arabia – less domestic demand in winter – may give OPEC's driving force reason to cut back, while Iran's production may have recovered to pre-sanctions levels, Argus Media's Alejandro Barbajosa said.

A November OPEC reunion may be a live event for oil markets but the message from experts was: Don't hold your breath and don't bet on a meaningful breakout beyond $50 a barrel.

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