Morning Brief – OPEC Meeting Could Be A Big Market Mover This Week

Markets going to react strongly to the OPEC decision this week, which could come as one of the main surprises to traders and investors as sentiment towards an output increase is still very bearish.

It was viewed that President Biden’s recent trip to Saudi Arabia was not successful and that the United States government largely failed in its effort to convince the Kingdom to pull its weight at the upcoming OPEC meeting.

Some sources have suggested that OPEC will likely discuss either maintaining current production or increasing output by a very small increment this week. Even a small increase could be seen to help “inflation” pressures.

Most of the sources cited by Reuters who are familiar with the OPEC ministers’ stances are implying that production will likely be held at current levels but not changed due to the complexity of so many different nations and interests. Especially as the Ukraine war rages.

OPEC is currently burdened with limited spare capacity, with Saudi Arabia and the UAE likely to bear most of the output hikes on their shoulders. Russia and Nigeria are very unlikely to play ball this week.

Upping production would almost certainly please Washington. One top US official recently stated that the administration is optimistic that there could be some positive announcements coming out of OPEC.

In terms of the task ahead to convince Saudi OPEC members, the IEA estimates Saudi has a short-order capacity (reachable in less than 90 days) of around 1.2mln BPD, with the longer-term capacity predicted to be nearer to 2.1mln BPD.

Analysts familiar with OPEC have been vocal about the low confidence in OPEC to stabilize the oil market if they have no spare capacity, with oil traders warning of a potential upward spiral in oil prices if this “worst case” scenario was to occur. sources. Meanwhile, the Joint Technical Committee (JTC) will meet on Tuesday TO review oil market developments. On Wednesday, the Joint Ministerial Monitoring Committee (JMMC) will review the findings of the JTC and make a recommendation to the decision-making OPEC+ group. The JMMC is set to meet with OPEC.

Watch out for major market moves on Tuesday and Wednesday on the back of the mentioned meetings and events. Oil prices and the broader financial market could become very volatile.