Oil prices on both sides of the Atlantic have plunged by 4% on Friday, due to the scepticism that the world’s largest oil producers can reach a deal – when they meet on Wednesday – to end the supply glut that dragged prices by more than 60% since mid-2014.
Earlier on Friday, oil was trading in positive territory, based on reports that Saudi Arabia has offered to cut production if Iran agrees to freeze output at current levels. However, the rally turned into a freefall after another report indicated that Riyadh does not expect any deal to be struck.
Traders are getting seriously frustrated and misled from comments here and there, which explains the huge volatility seen in oil prices most recently.
Deal or no deal?
Recent action, in terms of price, shows that investors are expecting very little from the OPEC/non-OPEC informal meeting next week in Algeria on the sidelines of the International Energy Forum. As always, we argue that a deal could be reached if the Saudis and Iranians decide to put their political conflicts on the side and cooperate towards ending the supply glut.
Iran has repeatedly indicated its plan to boost output to pre-sanction levels after the U.S. lifted it in the wake of the key nuclear accord. Now with an output of 3.6 million barrel per day, they’re still 400,000 thousand short of the targeted figure. Though if the Saudis are seriously considering a cut instead of a freeze, then it would be a fair deal for Iranian’s to freeze at current levels.
Considering that there is lot of pessimism over reaching a deal, I believe the magnitude for prices moving higher is far larger than moving lower. The bad news is already priced in, which will limit the downside, but if a surprise deal comes out, get ready for a strong rally.
Round one: Clinton vs Trump
Monday’s US presidential debate will probably break a new record, not in the S&P 500, but the number of viewers which, according to media analysts, could reach over 100 million Americans, surpassing the Carter-Reagan debate in 1980 which attracted 80.6 million viewers. With Donald Trump closing the gap with Hillary Clinton in latest polls, the debate is becoming more interesting than any other TV show.
America's direction, achieving prosperity and securing America are the three major topics at the first presidential debate.
Investors are becoming increasingly concerned on how to tweak their portfolios before Nov 8. NASDAQ's Biotech Index plunged 4.5% in two days (24-25 Aug) after one tweet from Hillary Clinton criticising the recent price hikes on EpiPens, which suggest that investors and portfolio managers are seriously considering having different asset allocation strategies on the outcome of the election. However, I still believe that a Trump win will be perceived as a negative factor to the overall market.
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