The OPEC waltz

September 27, 2016 08:00 AM

Crude oil prices are sliding and gliding to the OPEC waltz. Markets are fixated on this dance that at times seems to have the partners closer together, but at other times worlds apart. On Friday, oil prices tanked as both the Saudi energy minister Khalid al-Falih and Iranian oil minister Bijan Zanganeh both said that Algiers was for consultation and tried to lower expectations of a deal. Those expectations had been raised earlier last week as talk of formalizing the informal OPEC meeting raised hopes that a deal was in sight.

Yet, talks between Saudi Arabia and Iran had not gone well as the Iranians seemed intent on raising output to 5 million barrels a day and the Saudis wanted to have independent verification of oil output to make sure there was no cheating.

However, over the weekend there seemed to be some softening of the positions on both sides. The Saudis offered a 400,000-barrel-a-day cut in productions as good faith and Iran seemed to lower its oil production target. Instead of talking barrels, Iran put the proposal in terms of market share of 12.7% or roughly 4.1 million barrels of oil a day of production. This number in terms of a percentage, will make a deal more palatable to the political mood back home. While the number is still higher than the Saudis want, at least it’s a step in the right direction and that step had the market giddy that a deal may be done after all. Iranian production is currently 3.6 million barrels.

Once again both Saudi energy minister Khalid al-Falih and Iranian oil minister Bijan Zanganeh said that the Algiers meeting is just going to be a consultation and don’t expect a deal. One, two, three. One, two, three. Now twist, now turn...Even the U.A.E oil minister Suhail Al Mazrouei showed concern about an OPEC deal and said that he would support a deal to freeze output if other nations agree, but production cuts are not up for discussion. Of course, it seems that the Saudi’s would be doing most of the cutting anyway. One, two, three. 

The Gulf of Mexico is back on tropical storm watch. One storm in the Gulf of Mexico is seen as a low threat to supply but another developing storm may be a different story. A storm in the Southwestern Gulf of Mexico is close to land and the National Hurricane Center says it has a 10% chance of developing in the next 48 Hours. Its proximity to land makes it unlikely that it will be a major energy event but could slow imports and production in Mexico.

The second tropical disturbance with showers and thunderstorms associated with a broad area of low pressure -- located about 600 miles east-southeast of the Windward Islands -- continues to show signs of organization, and a tropical cyclone could be forming. If this trend continues, then a tropical depression or a tropical storm would likely form later today while the system moves west-northwestward to westward at about 20 mph.

Interests in the eastern and central Caribbean Sea, including the northern coast of South America, should monitor the progress of this system, and watches or warnings could be required at any time according to the NHC. Regardless of development, heavy rains and strong gusty winds, possibly to tropical storm force, are expected to spread over the Windward Islands and portions of the southern Lesser Antilles are beginning tonight and continuing into Wednesday.  An Air Force Reserve reconnaissance aircraft is scheduled to investigate the disturbance this afternoon. 

Natural gas is showing strength on concerns that production is slowing. A storm in the Gulf could slow production more but it is too soon to tell.

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.