In September, OPEC members meet informally in Algeria to revisit its previously failed dialogue on managing production output as a means to stabilize oil prices. Since its meeting in Doha last April, not much has changed. The same risks for lower oil prices still exists and remain overweighted to the supply side of the equation while demand may be anchored to the collateral damages extending from Europe.
So here’s a quick summary:
- Members such as Nigeria and Libya have yet to return to their normal production capacity as both face insurgent rebel attacks upon their oil infrastructure.
- Meanwhile, Iran has still has not reached pre-sanction levels of production.
- Then, there are the Saudis who were unwilling to budge on modifying production levels without retaining market share or participating cooperation from Iran. Has it softened its stance on this policy? I hardly doubt it.
- Lastly, on the demand side, weak global economic growth continues to be a headwind for energy prices. For its latest revision on July 19, 2016, the IMF reduced its 2016-2017 global growth outlook, due to Brexit, for both advanced and emerging economies.
The long and short of its upcoming meeting in Algeria is that the market could experience upticks in energy prices as in leading up to the Doha meeting. However, without any fundamental changes to the supply and demand issues, such a rally, if any, may be temporary and merely another good shorting opportunity, especially in the range of $48 – $52 price levels.