OPEC meetings, or more recently the meetings of “OPEC and friends”, are always big news in the energy sector. The price of oil is the most important factor in the profitability of energy companies, even those not in the oil business directly. It sets the standard for energy pricing generally, so cannot be ignored, and as OPEC’s express purpose is to influence price we all have to pay attention when they meet and speak. This weekend’s gathering in Algeria may be even more important than usual though, and traders will be watching closely. Traders are risk takers, of course, so the temptation for many will be to go into the weekend with a position in an attempt to profit from the announcement that will follow the meeting. In this case though, that would be a mistake.
There are some special circumstances surrounding this meeting that make the decision, and even the ability of the countries concerned to execute that decision, hard to predict. The first of those is where oil prices currently sit.
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As I’m sure you are aware, oil, both WTI as seen above and Brent, has been climbing steadily for over a year and is now nudging multi-year highs. That has at least in part been OPEC’s doing. The agreement to cut output signed by members and several other major producing countries, most notably Russia, has had the desired effect. In fact, it could be said that it has been effective beyond the wildest dreams of…