It was a strong OPEC meeting yesterday, not necessarily in actions, but in words. The alliance showed strength and reassured the market that if further action will be needed to discipline sub-compliers and balance the market, it would be taken.
Traders rebuilt confidence and felt reassured that OPEC+ would rise up to the occasion and shield prices if the situation worsens.
Today prices may be largely flat, but that in itself is a proof that yesterday’s enthusiasm was not a one-off event. The market now feels the ground more stable to maintain 40+ dollar price levels.
The Saudis came back with a vengeance in the eyes of market participants, following ABS’ thunder speech at the JMMC yesterday.
Lashing out at sub-compliers and offering extension (of the compensation cuts) to the end of the year led the market to reassess the Saudi’s determination and alliance’s might in its effort to rebalance the oil market.
It is very clear to us that a vigilant Saudi Arabia wants a higher oil price than where the market is currently trading. ‘Make my day,’ Saudi statements are a bull’s paradise.
We also believe the market reaction today is a reflection of growing beliefs that the oil supply’s growth might speed down due to higher likelihood of OPEC+ compliance.
Moreover, we believe the OPEC+ talks, leaving the option on the table for an additional extraordinary meeting as well, has jolted some confidence into bullish minds.
The belief may be that OPEC+ will not come “too late to the party” (in terms of adjusting OPEC+ policy) if demand takes another leg down due to new COVID-restrictions in the near term.
However, OPEC+ cannot single-handedly avoid the whole price downturn with words, but it may be able to limit the depth of the price decline. The market goes into Friday with more confidence that OPEC+ is tightening ship.
Time will show if Saudi Arabia’s determination and harsh words will be enough to allow oil prices to continue an upwards path to year end, as refinery demand is set to weaken in the coming months on weak margins, high product inventories and refinery maintenance.
