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Oil’s Big Week Is Upon Us

Refinery

It’s hard to imagine higher stakes for the oil market over the next week as traders get set for an OPEC+ meeting and the Trump/Xi G20 meeting on the heels of a 33 percent decline in prices over the last two months. Both conferences will be crucial to oil prices for 2019 and while it’s impossible to know what the exact outcomes of these meetings will be, we can start to consider what the market is expecting from the next week in order to get a sense of what oil might do after they’re concluded.

On the OPEC+ side, it seems clear that the market is currently forecasting coordinated production cuts- led by the Saudis of course- to the tune of about 1m bpd. The Russians and Saudis have telegraphed this move with recent public comments and analyst surveys are almost unanimously predicting cuts of 750k bpd – 1.25m bpd. A deal to the tune of 1m bpd seems to be already priced in to the market while significant bearish risks will be introduced if the deal is below 500k bpd (or simply doesn’t get done) and bullish risks will be introduced if the cut exceeds 1.5m bpd. On the down side, we’re concerned that the Saudi’s and Russians may fail to cooperate because they’re too far apart in terms of budgetary needs. The Saudis currently need oil near $75/bbl to balance their budget while the Russians need oil near $55/bbl. (Putin added this week that he’s completely pleased with oil near $60/bbl.) The Saudis have also hemorrhaged foreign…

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