(Bloomberg) — As OPEC and its allies prepare to meet this month, expectations may be running so high they can only disappoint.
From Russian President Vladimir Putin to Saudi Arabian Crown Prince Mohammed bin Salman, signals abound that the grand alliance of oil states will choose to prolong supply cuts when they gather on . Spurred by these hopeful signs, hedge funds have laid on record bets that futures will keep rising.
The risk for oil bulls and producers alike is that, with so much money already staked on an extension of the agreement, the market has no way to go but down. This happened when OPEC last met in May, when oil prices tumbled 4.6 percent after Saudi and Russian officials had pretty much confirmed before the meeting that they would agree on continued action.
“It’s already priced in, just like at the last meeting,” said Eugen Weinberg, head of commodities research at Commerzbank in Frankfurt. “The massive long overhang is about to get massively shorter.”
The sell-off could be deeper still if OPEC agrees a shorter deal than the end-2018 extension that is widely expected, or even postpones a decision until next year, which is what Citigroup Inc. expects.
“We’re back at a record level of net length, which is only a one-way street when you get there,” said Ed Morse, Citigroup’s head of commodities research in New York. After the meeting “the market will be pretty disappointed.”
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Source: Investing.com
