Global Market: OPEC Meeting Critical Binary Event for Oil Prices

The Dec. 6 OPEC general meeting has been described as a “critical binary event for oil prices,” in an industry note published by Jefferies on Tuesday.

“The Saudis have already indicated they will cut their production 500,000 barrels per day in December, but if this is from a November level of 11 million barrels per day it is not particularly heroic,” the note, which was sent to Rigzone, stated.

“A production cut of 1+ million barrels per day with Russian cooperation seems the minimum response necessary for Brent to catch a bid. Anything less could be ugly from a price standpoint until the market rebalances. An oversupplied market has a difficult time finding a price floor,” the note added.

The latest Jefferies note stated that the oil price correction has become a rout of “historic proportions.”

“The negative price reaction is as severe as the 2008 financial crisis and the aftermath of the November 2015 OPEC meeting, when the group decided not to act in the face of a very over-supplied market,” the note said.

“The primary difference between today and those corrections is the lack of an obvious catalyst, although the Saudi decision to surge production has dramatically increased the market oversupply in a very short period,” the note added.

Jefferies’ note also mentioned that the company’s fourth quarter Brent price forecast of $85 per barrel will be “almost impossible to achieve.”

“Given the extreme price volatility and the upcoming binary event our forecast is under review and will be updated when conditions warrant,” the note stated.

Analysts at Fitch Solutions Macro Research revised their oil price forecasts to 2022 in a new report.

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