Given all the chatter out of the OPEC meetings in Vienna this week, I think there is a very low probability that production quotas are lowered below the current 30.0m barrels per day. Instead, countries could pledge to closer adherence to current quotas.
When no cut is announced, there will likely be a knee jerk lower but afterwards, who will be selling? Sure there could be a squeeze a longs or another wave of hedging but I think it’s more likely that shorts begin to cover.
In my experience, oil isn’t likely to turn around in seconds after the decision but I’m beginning to think the best trade will be to buy a dip, especially if oil shows it can’t break the overnight low of $71.89. Alternatively, buying close to $70 with a stop below might be the way to trade it.
Overall, headlines like this make me think that sentiment is simply too bearish.
Then again, I wonder what some of these analysts have been reading.
“Uncertainty on the outcome of the meeting and thin markets on a U.S. holiday means there should be a decent reaction regardless of the decision (in both oil and [the Canadian dollar]). With our energy analysts biased slightly toward no cut, the implication is further pressure on oil prices, and a lift for [the U.S. dollar versus the Canadian dollar].” Keng Goh, Royal Bank of Canada.
Alternatively, there could be an argument for longs if the meeting extends below the top of the hour, when it’s scheduled to end. That would indicate a higher chance of cuts.
