Expect the volatility to continue heading towards the end of the month as we approach the OPEC meeting on November 30th, in Vienna. This morning we saw $1/bbl rally on crude and a $0.02/gallon rally on products following comments from discussions between OPEC members and Russia. All eyes are on Russia as they ponder the decision to join OPEC in production cuts to stabilize the global market. In the month of October Russia hit a post-Soviet high of 11.2 million barrels. If they decide that they do not want to strike a deal and join forces with OPEC any agreement that OPEC has without Russia is going to be offset with the record production Russia has been dishing out. Not everyone is on board with the publicity coming from OPEC. MarketWatch reported that Peter Lee, Asia oil and gas analyst at BMI Research stated “There is a lot of uncertainty on OPEC’s ability to reach an outcome. I am personally not optimistic.”
To support the possibility of Russia joining in on the production cut to strengthen the market, think back to earlier in 2016 when Russia decided to engage in talks with OPEC about limiting output. The market cruised upwards from $27 a barrel in January, to a yearly average of $44. The Bloomberg graph below shows Russia’s budget gains from the beginning of 2016 until September.
From July to September the revenue they were raking in was stable, but slightly lower than the revenue compared to June when crude hung around $50 a barrel more often than not. Does this give Russia an incentive to cut production and watch this market jump up over $50? Or does continued record breaking production reel in more money for the Russians? Bloomberg also reported that the Russian Energy Minister stated that Russia is willing to limit supply if OPEC finalizes its cut, but would prefer to freeze at current levels rather than reduce output. The chart above shows why they would “prefer a freeze.”
The market today has been somewhat volatile. Heating Oil was up nearly $.02 at one point but as of 11:00 AM EST, it is down $.0035. Gas is down $.0200 and crude is down as well $.50. A driver of that could be a stronger U.S. dollar this morning.