Contributed by Sloper Stephen Davied:
It seems every news agency is spitting out stories about the upcoming OPEC meeting on Dec 4, 2015. Based on what I have read consensus is OPEC will do nothing at the next meeting and the reason they will do nothing is loosely based on losing respect of others in the market. OPEC made the decision previously not to cut output in order to drive down prices and push out the inefficient producers. Consensus is that work may not be done yet. So it seems the expectation is for no quota change causing further price decline.
If everyone agrees OPEC is going to do nothing then it is my bet they will do something. I believe OPEC is done with $40 crude. I doubt there will be a complete change of direction. I believe they will take a play from the Federal Reserve playlist and just make a few tweaks to their post meeting statements. OPEC wants the price higher but without the second guessing of there actions. There is a fine line of where the price can go before NON OPEC producers start drilling again and ramping up production. The price of WTI most likely has room to go into the $50s while still keeping budgets and production dropping. It is only logical OPEC would want to have the price of OIL as high as possible without crossing the line of causing NON OPEC production to start increasing. Why have $30 oil when $50 oil gets you the same outcome?
So what will they do? Nobody knows (including me) but my guess is something like this:
1. Talk the price higher. They can openly discuss their interest in balancing world markets and how they will do everything in their power to bring the glut of oil down to a more manageable level. This will make us think action could come any second.
2. No quota change. They have stated in the past they believe the markets will hit equilibrium next year. If the consensus is right and OPEC really is concerned about what the west thinks, they would probably not change the quota.
3. Drop production down closer to the actual quota. I bet they are already pumping less, something closer to their quota now. They should have no fear of the ramifications of just pumping out their quota. The reason for pumping less would be they are now producing more in line with seasonal factors and customer needs. They can always ramp back up with prices go to high!
I believe now the risk in the short term is a pop to the $50s. We may take a very quick run at the high $30s first!
