The simplest way to describe the oil markets as well as the broader risk asset markets is in one word "uncertainty". Uncertainty is coming from many different directions all at the same time. June is the month of events and thus the month of above normal uncertainty. In the last five trading sessions oil prices have reversed direction each day demonstrating the lack of conviction by the majority of market participants. Each 30 second news snippet hitting the media airwaves sends the market in different directions as traders and investors try to sort out what is the next issue to emerge from the growing risk pyramid.
Today the first of the many June events will become clearer as OPEC decides what their forward production levels will be. There has been a group of OPEC members or the hawks...Iran & Venezuela in particular who are calling for a cut in production to bolster prices after about a $25/bbl decline over the last month or so. On the other hand the doves led by Saudi Arabia are looking to actually increase the official production ceiling and were showing no signs of agreeing to a cut ahead of the official meeting. History has told us that the position the Saudi's take heading into the meeting is generally the outcome of the meeting. All signs suggest history will repeat itself today and there will be no cuts in production with the official ceiling staying the same of raised marginally. I am expecting a rollover of the existing agreement.
This seems to be the outcome that the consensus of market participants has been expecting for the last several weeks and if the expectations are met I do not expect any major move in oil prices after the meeting communiqué is issued solely based on the outcome of the OPEC meeting. Oil prices are likely to remain in the $80 to $90/bbl range basis WTI and $95 to $105/bbl trading range basis Brent until the next round of events hit staring on Sunday. The outcome of the OPEC meeting...especially one that is likely to be a status quo meeting is certainly not the most important issue facing all of the risk markets in the short term and certainly not the main price driver for oil or the major risk asset markets.....Read the entire report.
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