The back and forth of OPEC ministers will be the focus across financial markets Tuesday as the oil cartel attempts to strike a deal that would once more change its strategy in the new world energy order.
As of Monday, Organization of Petroleum Exporting Countries ministers continued to work to reach a deal on a production cut that could trim more than 1 million barrels a day from world output.
The ministers officially meet Wednesday, and they have set that day as a deadline for an agreement. If a deal were to be struck, analysts expect oil could rise to $50 per barrel and above, but if not, it could quickly fall to $40 or below.
"This is the make or break moment for oil prices, certainly over the course of the next 12 months. If they pull off a deal obviously, we'll go appreciably higher and that could help revive U.S. shale production and other things," said John Kilduff of Again Capital.
"If they don't, and the Saudis take a harsh stand, the oil patch is going to be in for some harsh sledding here, at least into the spring of next year. This is momentous. This could be good for $20 either way,"
While oil rose on Monday, the Dow and were lower for the first time in four days, as the "Trump trade" took a breather. The Dow was off 54 points at 19,097, and the S&P was off a half-percent at 2,201. But the Russell 2000 fell the most, losing 1.3 percent after its stunning 15-day winning streak, its longest in 20 years.
Bond yields also fell Monday, and the dollar was lower against major currencies. gained more than 1 percent on its best day in three weeks. West Texas Intermediate crude futures ended at $47.08 per barrel, a gain of 2.2 percent.
Besides OPEC headlines, there are several economic reports due on Tuesday – third-quarter GDP at 8:30 a.m. ET, S&P/Case-Shiller home prices at 9 a.m. and consumer confidence at 10 a.m. There are also Fed speakers, including New York Fed President William Dudley, speaking in Puerto Rico at 8:15 a.m. ET. Fed Governor Jerome Powell speaks at 12:40 p.m. ET. Earnings are expected from Tiffany, AutoDesk and Splunk, among others.
But it's the outcome for oil prices that markets are waiting for on Tuesday. OPEC embarked on a strategy of letting the market set prices two years ago, in an effort to end a world oil glut by forcing out high-priced production.
Instead, the cartel and other producers drilled even more, sending prices crashing amid an oil glut. U.S. shale producers felt the pain and did close wells, cutting back drilling by about a million barrels a day from the 2015 peak. The industry has since been reopening wells and rig count has begun rising, but production would increase at a much faster pace if oil would stay above $50 and move toward $60 per barrel as analysts have been expecting.
Iran is at the heart of the current disagreement, just as it was when OPEC failed to strike a freeze deal in April. Analysts say Iran is so far not willing to cut production and is holding to the view that it was exempted from the requirements of the deal. Iran has been trying to regain its market share, after sanctions against its nuclear program were lifted. Saudi Arabia, meanwhile, scuttled the earlier deal because Iran would not agree to participate.
Many analysts on Monday still expected OPEC and other producers to come out with some semblance of a deal on Wednesday.
"Something's got to give here, and the recipe for Saudi Arabia and Iran to come to the table and put something together is getting more difficult. We should all prepare for big oil price gyrations in the next few days," said Michael Cohen, Barclays' head of energy commodities research.
Iran, with output at about 3.7 million barrels a day by some measures, is close to reaching the maximum it can produce, though its goal is to reach 4 million barrels a day, analysts said.
"Will there be a deal? I think yes. There will be some type of optic where it looks like Iran does something," said Helima Croft, head of global commodities strategy at RBC.
Meanwhile, traders in other markets were keeping an eye on oil.
"There are four things traders are watching this week, and tomorrow, oil is first on the agenda," said Scott Redler of T3Live.com, who follows the stock market's short-term technicals. He said the Wisconsin vote recount was also being monitored in case it became a bigger issue. Traders were also watching action in the Italian banks, which sold off Monday, as Italy gets closer to its constitutional referendum Sunday.
"Europe was down a percent on the fact that Italian banks were weak," said Redler. He said the stock market is also awaiting Friday's November jobs report.
"There were a few signs that gave traders an excuse to take profits. ...A pull back was pretty much in the cards," he said, noting the market was currently technically more overbought than it had been all year.
"Today was the first time the S&P closed below a prior day's low since the election; 2,206 was the low Friday and we closed at 2,202. That shows something a bit different. Traders actively adjust to small things that are different. It was the first time the small caps had an engulfing down day...But this is normal. The first level that would be worth a look for traders to test buying would be about 2193 (S&P), right around the eight-day moving average."
Redler said so far the pull-back had been orderly.
"It's the first kind of retracement move where you've seen yields pulled in a bit, banks came in and gold bounced a little bit and in the strong sectors of the last three weeks, there was profit-taking," he said.
But Peter Boockvar, chief analyst at Lindsey Group, said the pull-back could be a more ominous sign for the "Trump rally," which has stretched already high valuations.
"Certainly a lot of this rally is hopes and wishes, and you came very far, very fast. I continue to argue this dramatic rise in interest rates that happened coincidentally with the rise in stocks should not be ignored," he said.
While the rally could continue, the pull-back could be a warning.
"You had a year's worth of gains in three weeks in the Russell. You have a backdrop of expensive stocks with rising interest rates. You still have a Fed rate hike in a couple of weeks," he cautioned, adding that oil prices could influence the action.
"We'll see. If there's no deal and oil is pressured, it could make this controlled pull back a bit more volatile," Boockvar said.
The bond market was also watching OPEC headlines, as rates slipped. The 10-year Treasury was yielding 2.31 percent late Monday.
"With month end coming up, we've had a pretty big sell off over the last couple of weeks… You've seen the dollar weaken a bit, rates are lower. I think a lot of it is consolidation after you come back from a holiday and you had a lot of big moves. Today is a holding day. You have a lot of big events this week," Brian Dangerfield, macro strategist at RBS.