You don’t have to be a political scientist or an oil trader to understand that when it comes to when and where the decision on production cuts will be made, the answer isn’t “next week in Vienna”, it’s “this weekend in Buenos Aires”.
Both Vladimir Putin and Crown Prince Mohammed bin Salman will be town for the G20 and hopefully, they left their novichok and bone saws in Moscow and Riyadh, respectively.
That’s who will make the decision on what OPEC+ will or won’t do when the cartel and allied producers meet next week and nobody is under any delusions to the contrary.
Well, I shouldn’t say “nobody”. Donald Trump certainly believes he has a say in this and indeed he does, so I probably shouldn’t say there’s not one other person involved in the calculus either.
Trump has managed to install himself as a kind of honorary OPEC delegate, although I’m not sure “honorary” is quite how the cartel thinks about the U.S. President’s influence over prices.
Late last week, the Wall Street Journal reported that the Saudis are working on a ruse to try and implement what the market will read as a de facto production cut while retaining current production targets (set in 2016) in an effort to avoid irritating Trump.
As a reminder, OPEC ramped up production into the Iran sanctions only to see Trump grant waivers to eight nations, a move that, when combined with surging U.S. output and signs that the global economy might be rolling over, pushed prices into a bear market.
On Thursday, WTI dove below $50 for the first time in more than a year, on track for a truly horrific month, but did manage to bounce after Reuters reported that Russia has now acquiesced to the necessity of a production cut.
“Russia is becoming increasingly convinced it needs to reduce oil output in tandem with OPEC but is still bargaining with the producer group’s leader, Saudi Arabia, over the timing and volume of any reduction,” Reuters says, citing two industry sources.
“The idea at the meeting was that Russia needs to reduce. The key question is how quickly and by how much,” one of the sources said, referencing a pow wow between the Russian Energy Ministry and the heads of the country’s domestic producers.
Meanwhile, if you’re wondering whether CTAs did indeed play a role in pushing prices lower during this month’s rout, the answer would appear to be “yes”. As Bloomberg’s Dani Burger writes on Thursday, “the commodity portion of a trend-follower’s portfolio has gained 3.5% in November”. Here’s a chart:
And while Dani notes that’s “not enough to offset broader losses [for CTAs] as bearish momentum takes hold of [other] risk assets”, you can bet it means that momentum chasers helped push crude through key strikes on puts held by producers, which in turn triggered forced selling from dealers accelerating the declines.
In any event, all eyes will be on the G20 and, of course, Trump’s Twitter feed, as traders search for clues as to what the real cartel (Trump, Putin and Prince Mohammed) have decided with regard to what the other cartel (OPEC) should announce next week.