All options on the table

September 26, 2016 08:09 AM

Saudi Arabia offering to cut production in a sign of good faith after they lowered expectations for a deal in Algiers this week. Saudi Arabia says they are ready for any outcome and there is talk that if OPEC can come to an agreement, they could still formalize this meeting. OPEC negotiations are heating up as the cartel members look to solidify a deal to restrain oil output.

Algerian Energy Minister Noureddine Bouterfa said, “All options are possible for OPEC concerning an output cut or freeze with producers agreed on the need to stabilize the market.”  The Saudis want a deal especially because Saudi Aramco is going public and they had to inject 5.3 billion dollars into the Saudi Banking system. Yet, hedge funds cut their bullish bets after Iran and Saudi Arabia both said they don’t expect this deal to be final. Still when it comes to negotiations, all options are indeed on the table and the talking continues and will for the rest of the week.

In the meantime, oil traders may have something else to worry about as global stock markets look shaky as Deutsche Bank stock hits a record low. Concerns about the German bank have hit overdrive as a potential 4 billion dollar fine by the U.S. Justice Department may dry up all of the bank’s capital and the German government is saying it may not offer the bank a bailout if needed. Obviously, if this causes a panic in global markets, the fallout may mean that it is more critical for OPEC to cut production. I still believe that a deal will get done.

U.S. oil inventories will also be key as the amount of supply has gone down dramatically in recent weeks. Part of the decrease was storm related but we are also seeing signs that the glut in the US may be easing. Look for crude supply to be up by 3 million barrels this week. Gasoline supply down 2 million barrels, distillates down by 1 million and runs down 0.5. Cushing, Okla., should be up 100,000.

The Atlantic is still active and there is a storm that the energy markets will be watching. The National Hurricane Center says that thunderstorm activity associated with a large low-pressure area located about 1150 miles east-southeast of the Windward Islands has increased and become a little better organized since yesterday. Environmental conditions are expected to be conducive for gradual development, and a tropical depression is likely to form later this week while the low moves westward to west-northwestward at 15 to 20 mph.  

About the Author

Phil Flynn is a senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. Phil is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets.