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Two down, one to go?

Published Thursday, January 28th, 2016

Russia is not talking about a production cut in co-operation with OPEC; Russia is thinking about talking about one; Russia is already in talks about a cut. There were comments yesterday from various Russian interested parties to support all three of these conclusions ranging from government officials to the head of Transneft. On the basis of no smoke without fire it is probably correct to assume thought is being given and probably views exchanged with the Saudis on what form co-operation could take.

Russia desperately needs the revenue and some production slippage next year is expected. It would not be difficult therefore for Russia to agree to limit production to say 10.5 mbpd having produced at close to 10.8 mbpd in 2015 Would this be enough of a gesture? Possibly but the word on the street is that the Saudis would also want the see contributions from Iraq and Iran as well. For the first time yesterday the Iraqis talked about cutting if other OPEC members and non-OPEC do as well. So, is that two down with Iran to go? Algeria and Venezuela have already said that they will join in a co-operative cut.

The chances of an agreement are slim but it is clear that sub $30 bbl has focused minds and provides a good reason to believe that we will not be seeing $20 oil prices in the near future. Whilst this OPEC/non-OPEC manoeuvring is taking place it is at the very least prudent to take profit on shorts, even if it is still too dangerous to take on length. Yesterday we saw Brent trade up to a high of $33.49 bbl before closing at $33.10 (+1.30). WTI traded up to $32.84 bbl and closed at $32.30 (+0.85).

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Posted by David Hufton