Crack continue to appear in OPEC’s attempts to put together a meaningful deal before the November 30th meeting. Now Iraq has joined the OPEC NIMBY’S.
First, let us explain what a NIMBY is. It stands for Not In My Back Yard. Airports are a classic example. Residents may get all excited about the prospect of having a new airport built for them until they find out it’s being built next to them. Then the protests start. Everyone wants a new airport, just not in their back yard. The interminable saga of the 3rd runway at Heathrow is a classic example. Sydney has been wrestling with the problem of a new airport site since the 1940’s!
Nimbyism is now raring its head amongst OPEC’s members increasingly loudly. All of OPECS’s members want to see oil prices rise to ease the carnage in their State budgets, increasingly more of them don’t want to partake in the production cuts to nake it happen.
This weekends “technical” meeting of OPEC in Vienna, which also included major Non-OPEC members Russia and Brazil, saw Iraq well and truly join the NIMBY camp by stating it did not want to be one of the members to take the pain. That club now includes Libya, Nigeria, Iran, and Iraq. My guess is Venezuela will soon start making noises about not in their backyard either given they are teetering on insolvency anyway.
Russia has already stated it is only interested in a production freeze for its part which means OPEC will find no joy from the Non-OPEC members either. That really leaves Saudi Arabia and the Gulf states as the proverbial meat in the sandwich. The onus will now fall on them, most particularly Saudi Arabia, to make the cuts unilaterally to get any deal over the line.
The whole saga shows that after the initial euphoria just what shaky ground the production cut deal is on. The weight of producer hedging by selling oil futures, as WTI climbed through $50.00 a barrel was probably the first sign that those in the know weren’t as confident as the initial headlines suggested.
WTI has now broken back through $50.00 and is in a solid downward channel over the last week. Resistance is at $49.00 with support at $47.30 which mark the top and bottom of the channel today. A break through $47.30 opens a move to the 100-day moving average at $46.10. Things will get emotional technically if $46.00 breaks with the next support at the $42.30/$42.60 regions, a triple bottom and the 200-day moving average.
Likewise, Brent is teetering with support at $49.20. A break here opens up a move to the 100-day moving average at $48.00 a barrel.
Nimbyism is well and truly alive in OPEC at the moment. The refusal of key members has production cuts put “in their backyard” is threatening to derail the deal. Unless they can reign in the recalcitrant members including Non-Opec members, or Saudi Arabia blinks on a large scale, it threatens to return the oil market to “every man for himself” situation that sank oil prices in the first place.