Oil prices dropped by 2 dollars a barrel on light volume after Saudi Arabia refused to attend a meeting with non-OPEC members over the weekend. The Saudis, who thought they had a deal with Russia, seem to know that the Russians are failing to do their part. The Russians are probably backing off a bit because they are looking at the consigns that Iraq and Iran is getting and they don’t want to do any more of the heavy lifting. In the meantime, the Saudi Energy Minister, Khalid al-Falih, said the oil market will rebalance on its own and a production cut may not be needed as rising demand in the United States may put the market in balance soon.
Still other OPEC members are making a last-ditch effort to save this deal and one may wonder if this is just a negotiating tactic. We have seen Iran not go to a meeting in Doha that blew the production deal in April. Still, we know that at the end of the day if the Saudis don’t cooperate there will be no deal. Reuters is reporting that the Algerian and Venezuelan oil ministers are traveling to Moscow in a final attempt to persuade Russia to take part in cuts instead of merely freezing output.
The last gasp of a deal could send oil to the low $40s but the Saudis are right, the demand pictures is better than it was a year ago. While we may dip into the high $30s on no deal, this will be short-lived. We see the market getting in balance soon and oil will bounce back. If OPEC saves the deal, we could see oil go to $60.
Natural gas is coming back to life as more winter temperatures may hit us in December. While we should not be shocked about cold weather in December, thaw market action reflects a new dynamic as demand for natural gas will rise and we have less coal to pick up the slack.