There has been further volatile trading in crude ahead of Wednesday’s OPEC meeting in Vienna with a generally pessimistic tone surrounding the potential for a deal undermining oil futures on Tuesday.
Oil futures rallied during the New York session on Monday with January WTI strengthening to highs near $47.50 with markets looking to take a more optimistic stance towards a potential OPEC deal with indications from Iran and Iraq that they might be willing to hold output steady, although Saudi Arabia is still looking for these two countries to cut production and agreement remained elusive.
The main feature was a sustained increase in volatility and prices retreated to the $46.50 area later in the US session.
Informal talks between OPEC members have continued over the past 24 hours and there will inevitably be a further intensification of activity ahead of tomorrow’s meeting.
At this stage, there is no evidence that there has been significant progress in further narrowing underlying differences between Saudi Arabia, Iran and Iraq. Iran and Iraq are both determined to boost overall output levels to make up lost output and their reluctance to cut output remains a key barrier to any agreement.
Russia has also stated that it will not cut output, although Oil Ministers from Algeria and Venezuela are due to meet Russian officials during Tuesday in an attempt to persuade Russia to lower output.
Brinkmanship will inevitably play a key role ahead of and during Wednesday’s meeting and there is therefore scope for high volatility in prices as markets react to the news flow with extremely choppy trading conditions during Wednesday.
There was a slightly pessimistic assessment by the Indonesian oil minister on Tuesday and January WTI futures retreated to below $46.00 ahead of the US open with January Brent futures sliding to below $47.20 p/b.
There was a net increase in long non-commercial crude oil positions in the latest weekly COT data, maintaining the risk that there will be a sharp unwinding of positions if OPEC fails to secure a production deal this week.