Morgan Stanley on Oil & OPEC

MS energy commodity research team sent out a note today about the prospects for the crude. It is focused on the issue of OPEC output freeze the market chatter on which was the main argument behind the positive trend from recent weeks,
Here is MS take on the issue:

  • the markets trat OPEC as ’the central banker’ of oil - which can use the same sort of jawboning ordinary central bankers use to affect the currency
  • the forum in Algeria when there were supposed to be some informal talks on output freeze is more thana month away so markets may lose interest in it - for the time being
  • anyway, meaningful OPEC output agreement is highly unlikely - there are too many headwinds and logistical challenges
  • OPEC has a really poor track record in terms of such targets, it has seen many objections by important members
  • even if a deal is reached the current output is at record levels due to seasonal factors and market share push by some of the members.
  • it all started with a misinterpretation by the market of the words by Saudi oil minister - there was no change in his rhetoric and yet the market decided to read more from it
  • the recent bounce was technical and positioning-based than fundamental

As this report is being taken into account by the market the price of oil is still holding relatively well seen against the drop in EURUSD and the other news today.



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