Oil was up close to 6%, but still in the mid-$40s. The distraction for the oil market has been the OPEC decision coming later this month.
Remember, we got word from the Saudis in late September that they, and other OPEC nations, were finally in agreement that a production cut was needed to get oil prices higher and to stop the bleeding in their oil revenue dependent economies. As we’ve discussed, this would be the first production cut in eight years. It’s a huge deal. And it would be a response to the oil price crash they created, two years ago from this coming Thanksgiving Day, when they ruled out a production cut. Oil ultimately fell from around $70 to a low of $26 earlier this year and nearly destroyed the competitive U.S. shale industry.
The markets have been reluctant to take them at their word on a cut coming this month. And underpinning that skepticism, OPEC members have been wavering in their support in their comments to the media. With that, we’ve had a new higher demand regime priced into other asset classes, but oil hasn’t participated. This sets the table for a potentially explosive move in oil next week, when we hear a formal decision from OPEC. From current levels of just over $45 today, there is clear asymmetric outcome on this event. The market has already priced in a balk by OPEC. If they do balk, oil prices probably don’t go much lower. If the market has been wrong, and they cut, we could see $60 oil very quickly. At least this time, the announcement won’t come in a thin holiday market like it did in 2014.
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