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Will Oil Crash Again If OPEC Fails To Extend Its Deal? (USO)

11 Noviembre 2017
Will Oil Crash Again If OPEC Fails To Extend Its Deal? (USO)

Brent crude was at $63.81 per barrel at 0615 GMT, down 12 cents from its last close but within $1 of a more than two-year high of $64.65 reached earlier this week.

London:Oil markets were little changed on Friday, supported by ongoing supply cuts and strong demand which have resulted in a tightening market, although the prospect of rising U.S. output capped prices.

While both Saudi Arabia and Russia have signaled that they're open to extending the cuts through end-2018, and the market is largely expecting this, there are growing voices that the current higher oil prices will discourage OPEC and the Russia-led non-OPEC partners from committing at month's end to rolling over the cuts to December 2018. If the crude oil December contract makes a new daily high of $57.70, I will consider a long position in the commodity.

Riyadh has been one of the driving forces behind the 2016 agreement, intended to overcome the global oil glut. Most probably. As we approach $60 for WTI most of the U.S. shale companies will become profitable, and such additional output, will put a limit on any price gain.

"Market participants expect OPEC to extend the production cuts beyond March 2018 and stocks to decline further", analysts at Commerzbank said, noting, however, that "the higher price level should lead to a further rise in U.S. shale oil production". According to customs data, in October, China imported 7.33 million barrels of oil per day, lowest since October 2016, when it imported around 6.8 million barrels per day. "Our base case is that we do not get a full-year extension on Nov. 30".

IRAQ: Iraq will be the last Middle East producer to announce its monthly prices this month. Realistically, if gold can't rally while Saudi Arabia is undergoing a real-life "Game of Thrones", I'm not sure what is left to provide a tailwind.

Russia's Energy Minister Alexander Novak has already hinted that the decision would likely come at a later stage. That is half the number of ships in June and down from 40 tankers holding surplus fuel in mid-2017.

If oil prices don't fall much from their current levels until the November 30 meeting, some OPEC producers, as well as Russia, could be reluctant to commit to specifics until they see how the market will look like in early 2018.