Crude prices reached a three-week high on Tuesday due to increased expectations that OPEC will agree on a collective supply cut at a ministerial meeting on November 30. ICE Brent prices grew to a high of $49.96/bbl on Tuesday, just shy of $50/bbl before settling at $49/bbl on Wednesday. We expect OPEC to reach a deal which is most likely to be some form of face-saving measure, be it a production freeze or supply cut of 500 kb/d to 1 mmb/d.

A failure to reach consensus could cement the cartel’s status as increasingly irrelevant, leading to an existential crisis. While oil prices will see a short-term rally in the aftermath of the OPEC meeting, the boost in prices will likely not be sustained through 2017 due to persistent oversupply in the market. October saw OPEC crude production hit record levels of 33.83 mmb/d as Nigerian and Libyan output recovered. Non-OPEC member Russia set a new-post Soviet record of 11.2 mmb/d in October. Other non-OPEC members expanding production include Brazil and Kazakhstan.

November is likely to see similar levels of production from OPEC, with weekly OPEC crude export loadings at their highest in a year. The ICE Brent futures curve reflects the state of oversupply in the market as timespreads remained unchanged, with the M1-M2 spread still in contango at $1/bbl. With the US rig count starting to creep up as shale producers prepare to increase output once prices hit the mid-$50s, the oil market faces a long road to rebalance and recovery
Source: OFE