Oil prices have rallied from February’s lows by nearly 100%, but the market is a long way from finding balance. With production continuing to outstrip demand, all eyes are on OPEC’s meeting in Vienna on November 30th.

An agreement in Algiers in September has set the foundation for Vienna, with experts working on the technical aspects. Here we look at the key factors to consider for trading on oil around the meeting.


Key Players


The compass points to Saudi Arabia and Iran above all the other members of the 14-nation cartel. It was the failure of the two nations – who are fierce regional rivals– to agree terms that derailed the Doha talks, which had promised to end with a cap on production.

Iran is only just re-entering the fray after years of sanctions. It wants to grow market share and has been the biggest obstacle to an accord.

The Saudis are keen to cut. They have a budget deficit of 10% of GDP, the biggest in two decades, and are no longer prepared to act alone as the swing producer. They also have plans to sell $2bn of Saudi Aramco.  A higher oil price could make investors pay more for stock. Khalid al-Falih, Saudi Arabia’s energy minister, is the man to watch and has said he wants production capped at 32.5m bpd to speed the market’s recovery.

Iraq has come out in favour of a production cut and it’s thought that a number of smaller producers in the cartel would back one if the big players want it.

The so-called Fragile Five of Nigeria, Venezuela, Algeria, Iraq and Libya are those thought to be struggling the most with persistently low prices.

Fiscal breakeven prices vary considerably. Kuwait can balance its books with oil at $49, while Qatar needs $55. Few are so well placed. Iran’s breakeven is $87, while the Saudis need $105. Libya requires crude at $269. Simply put, most require oil prices to rise beyond where they are now to keep their economies on track.



OPEC production continues to rise despite the progress in Algiers in September. The bloc produced 33.64m bpd in October, a record high.

Without an accord, the market will endure another year of “relentless” supply growth. That is the view of the International Energy Agency (IEA), which notes that rising production shows no signs of slowing down.


In its monthly report, the Paris-based group noted that global production rose by 800,000 a day in October to 97.8m bpd, led by record OPEC output. Russia, Canada, Brazil and Kazakhstan are also opening the taps, fuelling a glut that looks likely to persist well into next year – unless OPEC agrees something meaningful in Vienna.

“Whatever the outcome, the Vienna meeting will have a major impact on the eventual - and oft-postponed - rebalancing of the oil market," the IEA said.

OPEC is certainly not the only show in town. Non-OPEC output rose by 485,000 bpd in October.



Traders should also keep a close eye on Moscow. Russia, the largest non-OPEC, producer has said it will join a freeze if the cartel agrees one – without it doing so global output would still rise by 200,000 bpd next year.

Vladimir Putin says there is no real barrier to OPEC cutting output. He too would desperately like to see prices rise.



The elephant not in the room is the US. The world’s largest economy is pumping oil at near record levels. Any output cut by OPEC needs to be viewed in the context of a shale oil industry that is more efficient than ever and is increasingly able to fill the gap left by non-US producers.

The closely-watched inventory figures from the Energy Information Administration (EIA) shows a build-up of barrels. The Nov 23rd report did show a slight draw of 1.3m barrels, but that came after unexpectedly large builds of 5.3m, 2.4m and 14.4m in the preceding three weeks.

According to the EIA, US crude oil production averaged 9.4 million bpd in 2015, and is forecast to average 8.8 million bpd in 2016 and 8.7 million b/d in 2017.

Meanwhile, Baker Hughes shows the US rig count rose for the fourth straight week, up 3 to 474, the most active since the end of January. However that remains down 81 from a year before and is considerably short of the 1,600+ drilling in 2014.

What’s critical for the crude market is the cost of production for US shale. Whether OPEC freezes or not, the price of crude is increasingly linked to the breakeven for shale. According to Wood Mackenzie, shale costs have come down 30-40% since the crash in prices.

At the very least it provides a cap on crude prices and with costs still coming down this is likely to keep pressure on crude.



Rising supply is just one side of the equation. Basic economics tells traders that we need demand as well and it’s just not there. The Financial Times reported on November 17th that there is a large number of tankers in the North Sea filled with Brent crude that cannot be sold. The spread between the January and February Brent contracts has widened to $1, a signal of oversupply.

And ​more demand is not coming along soon. "There is currently little evidence to suggest that economic activity is sufficiently robust to deliver higher oil demand growth, and any stimulus that might have been provided at the end of 2015 and in the early part of 2016 when crude oil prices fell below $30 a barrel is now in the past," the IEA said.

US dollar


Dollar strength is another factor for oil prices. The greenback has enjoyed a remarkable rally since Donald Trump’s election victory, hitting fresh 14-year highs against its peers. A stronger dollar tends to mean cheaper oil as crude is priced in greenbacks.

Oil Prices


So what chance of a deal and what will be the effect on oil prices? There are three likely outcomes:

No deal – Iran digs in its heals and there is no accord. Oil markets are roiled and we see crude futures drop like a stone. OPEC credibility would be shot and we’d have to expect members to continue increasing supply to defend market share.

Low-key deal – Base case is for a meek deal that involves freezing output. Saudi Arabia shoulders the work and there are exemptions for troubled members like Nigeria and Libya that means actual output still increases. In Algiers the target of 32.5m-33m bpd was set, with an initial duration of just six months. The chances are that even if a timid freeze is agreed we’ll back at the same table in half a year.

Strong agreement – There is a chance that OPEC comes out strongly in favour of a freeze, with all members on the same page and an agreement to keep this in place for as long as it thinks necessary.


How the market assesses any deal will depend on the details. In Nymex crude we have strong resistance at $52 that will be severely tested if a deal is done. On the downside, there is further to go, with support at $40 if we get a negative outcome.

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