• (1) OPEC has driven the price of oil this year
  • (2) Hiding how bad the fundamentals really are
  • (3) Smoke should dissipate and I expect a correction in the coming weeks

(1) OPEC has driven the price of oil this year 

Since April to now Brent has been roughly trading between $42 and $52. Information related to OPEC have been driving the market – lot of volatility.

This phase is approaching its end as a deal has been reached – big upside move occurred in two legs: after the deal was agreed by OPEC members and the second after non-OPEC countries agreed. There was a downward consolidation after the first leg.

This deal will be implement at best beginning of 2017 . I think expectations have too much influence now and market is not looking at concrete data and current situation.

(2) Hiding how bad the fundamentals really are 

Single most important thing for the market : demand & supply

Current: production is still very high from an historical perspective:

  • Nigeria, Libya, Iran, Iraq: “new” production
  • Russia, Mexico, US, Saoudi: old players at relatively important level of production
  • Huge inventories
  • Demand is growing modestly

(3) Lot of smoke –> I expect a correction in the coming weeks 

There is a vacuum now and I think fundamentals data come back as the main drivers of the price.

There are some major concerns (especially from the supply side) that could trigger a sell-off. The oil market is yet to be balance.

This is the story of who is driving the market? Expectations vs. present. OPEC has raised expectations, price followed. But present situation is still shaky and should drive market lower