Elsa Lignos, Senior Currency Strategist at RBC CM, notes that on Tuesday, Nigeria’s oil representative (and outgoing OPEC president) claimed that OPEC is considering an emergency meeting, perhaps as soon as next month.
“Oil tried to rally but investors have learned to discount individual members’ hopes. The strategy from the group as a whole has not changed—the UAE’s Energy Minister followed up the comments from Nigeria by saying, “I don’t think it’s fair to ask OPEC” to cut production in isolation, adding that their current strategy is “working”.
Our energy analysts have cut their oil forecasts again (now looking for WTI to average USD40/bbl this year (prev USD52/bbl) and USD57/bbl in 2017. They argue that the rebalancing act still has a long way to go. Rapidly increasing market expectations of economic turmoil are outstripping the slow recalibration of global supply.
Non-OPEC production remains resilient, Iranian production may come online more quickly than anticipated, and there are signs of tapering Chinese demand and what we see as weather-related softness in US demand. But they note that one of the biggest drivers of the price action is poor sentiment—managed money shorts remain near highs and open interest in lower strike put options continue to dominate. That means a near-term bearish outlook even as oil plumbs new lows.”