WTI daily
WTI daily

There is still a high chance that OPEC+ comes to an agreement on supply as higher prices are positive for all oil-producing countries. However, there appears to be a real sticking point over country quotas, particularly in Africa.

If the talks become heated enough, producer discipline could break down or Saudi Arabia could withdraw its 'lollypop' additional 1 million barrel per day cut. If so, there is the risk of material downside in oil.

If were were to see a breakdown in OPEC, oil could easily fall in to the $50s, which would be sharply disinflationary. I think it would be the nail in the coffin of the 'sticky' inflation argument. Aside from shorting oil, the obvious trades on it would be:

  • Buying bonds
  • Selling the US dollar
  • Buying equities

I could make the case for a half-dozen other trades as well (gold, for one should do well on rate cuts) but the overall theme would be to supercharge the moves we've seen in November.

Where would I put the odds? Maybe 1-2%... but that's higher than it was before the latest OPEC headline.

Right now, we're seeing some of that come into the FX market with the euro and pound both at the best levels of the day and some moderate USD weakness.