Watching For Signals From OPEC

 | Nov 30, 2016 05:26AM ET

Market Brief

All eyes on OPEC

In the Asian session, headlines about the OPEC meeting today in Vienna dominated trader focus and drove asset pricing. Asian regional equity indices were mixed with the Nikkei and Hang Seng higher by 0.5% and 0.27% respectively. Yet the Shanghai Composite and ASX were lower due to weak commodity prices. Today’s OPEC meeting has generated significant volatility in the oil market this week, increasing the probability that a surprise decision will have a meaningful effect on prices.

Currently, a cut in production seems unlikely given the divergent interests between members. The most recent headlines are that Iran and Iraq are against pressure from Saudi Arabia to cut oil production, making a deal for limited output difficult. However, there is a real risk that OPEC will attempt to protect its damaged reputation with some sort of announcement (most likely a further effort to manage the ongoing global supply glut). WTI has now settled in the middle of its $42-$50 range, indicating room for easy movement in either direction.

We remain highly sceptical of any meaningful agreement and would short any weakly-worded communication for a move toward the $40 floor. We would also play short oil linked currencies such as NOK, CAD, RUB and MXN against the USD as the combination of lower crude prices (lower sensitivity) and wider interest rate differentials should increase selling pressure.