The largest member of the OPEC producer nations, Saudi Arabia, has publicized that it will not be taking part in Monday’s non-member consultations with Russia and other key non-OPEC oil producers to discuss supply limiting. Sources point out that Saudi Arabia is looking for internal consensus, first, before talks with Russia and others can roll forward. Monday’s private meeting was intended to serve as a bridge to amicable communications to take place during Wednesday’s official meeting, where new developments for the path forward, in terms of production quotas and coordination with non-OPEC member states will be ironed out.

Russia has expressed a willingness to participate in coordinated efforts, but recent headlines illustrate an utter lack of commitment from Saudi Arabia to involve Russia in discussions on the 30th or to join pre-meeting discussion on Monday the 28th. Rumors of an 800Mb/d combined OPEC/Non-OPEC production cut, were first confirmed by Iraq who was calling for a further 100Mb/d (900 Mb/d total) cut, but have now have been put to sleep on commentary from Russian Energy Minister Novak’s recent comments. The prospect for such a joint deal to take place hinged on Saudi Arabia’s presence at the 28th pre-meeting or Russia’s presence at the official meeting on the 30th; however, neither legs of this scenario have shown any signs that they will materialize.

Despite the Libyan OPEC governor’s press comments highlighting “progress” and “ initial talks going well”, the outcome of the “Technical OPEC Meeting” last week was lack luster, in terms of any progress to a an output freeze. Iran and Iraq production cut discussions were deferred to the Nov 30th meeting, and little progress was made towards any sort of preliminary agreement or plan of action heading into the meeting.

Prior to the technical meeting, OPEC members called for Iran to hold off at 3.9Mb/d (Current non-OPEC estimate). Iran has not acknowledged the request and has recently put three new oil fields online adding 0.2 Mb/d, placing the national output near its post-sanction 4.2 Mb/d production ramp, end-goal. President Elect Trump may place additional pressure on Iran as the nuclear deal is reviewed in the distant future, however at present Iran’s campaign to regain market share presses on since the Jan 16th (2016) sanction lift. Iraq remains reluctant to commit to a production freeze as well, mainly citing funding concerns as the fight against ISIS continues.

The Jan delivery WTI crude oil futures contract has pared gains significantly, in past few sessions, as markets doubt that the OPEC deal can be locked during the Nov 30th OPEC (Ordinary) meeting in Vienna. Recent commentary from OPEC members highlights the disarray. Earlier in the month promises of an output freeze caused prices to pop, to $49.20 off of the $44.00 technical bottom, placing pressure on shorts. However, the $50 handle remained untouched and prices have reversed sharply to $46.06, as OPEC member states took to the newswires. Commitment of traders shows Specs and Comms heavily short the black gold and the lack of offers lifted significantly through the $50 handle, during the temporary squeeze earlier, is unlikely to have shaken out a wide majority of the shorts.

Bear spreads pulled down the front of the curve, and widened the contango trade out across the matrix to Dec 2017. The front end dominated the curve on light Thanks Giving volumes and overall bearish sentiment. Bear spreads came out ahead week over week, term spreads out 6-9 contracts wide adding just north of $1.50 in gains.

As it stands the two key pairs of nations, that are paramount to the establishment of a renewed global production regime, Iran & Iraq and Saudi Arabia & Russia, are not communicative nor cooperative. Markets are currently looking for pre-meeting dialogue that may suggest a path to further discussions on the 30th. However, if discussions are left solely to the official meeting, it would likely surprise market participants if significant progress towards a production cut, or simply an output freeze, with measurable consequences and a near term implementation plan came to fruition. Markets have taken note of reliability and credibility concerns, with regard to OPEC’s ability to follow through on directives post-meeting, and will take more than another call to future discussions to unwind the prevailing sentiment.

-David Felkai Uptick GMA.

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