Oil: Upcoming OPEC meeting coming into focus - MUFG

Lee Hardman, Currency Analyst at MUFG, notes that one of the other main focuses in the financial markets is the upcoming OPEC meeting in Vienna on Wednesday.

Key Quotes

“OPEC members are expected to thrash out details to support their preliminary agreement from September to cut production to between 32.5 million and 33.0 million barrels/day which would imply a cut of at least 800k barrels/day from current levels.”

“Saudi Arabia is reportedly pushing for the steepest cut possible arguing for a production cut to 32.5 million barrels/day. The case for a steeper production cut has reportedly picked up steam as OPEC officials study new data showing the imbalance between oil supply and demand will take longer than they thought to correct itself without intervention. According to people familiar with the matter, OPEC is also pushing for Russia and other oil producers outside OPEC to cut another 500k to 600k barrels/day. The stronger US dollar is also contributing to the more challenging environment for oil producers.”

“As a result, there is building pressure on OPEC members to reach an agreement to cut production significantly, without which downside risks will increase to our outlook for a further gradual rebound in the price of oil and related currencies in the year ahead. On a relative basis amongst oil related currencies, we remain more bullish over the outlook for the Norwegian krone and Russian rouble.”

“There have been some encouraging signs recently that an agreement will be reached with Iraq’s Prime Minister Haider Al-Abadi stating the country is now willing to cut some of its own production. A failure to reach an agreement has greater potential to lift volatility in the foreign exchange market.”