The upcoming OPEC-led meeting of the world’s leading oil producers in Algiers throws up the possibility of seeing a production freeze for the long-suffering crude oil market. With prices in the midst of a $45.5 to $50 price range this September, the potential for a reaction from Saudi Arabia et al. during the September 26-28 the International Energy Forum sidebar will be music to the ears of commodity investors. The real prospect of seeing prices break through the $53 mark for the first time in almost 12 months should be enough to incentivise members and non-members alike to agree to a production freeze.

Yet this is not the first time producers have been in the driving seat to reach an agreement but crash out at the last minute. The consensus from the Doha at the April meeting of OPEC was unanimous in agreeing that a production freeze is, of course, necessary, however none of the attendees were willing to put their money where their mouth is and implement such a strategy. Once again the very real risk of inaction is at our doors as mistrust among members that one (or more) of the others will not honour such an agreement, choosing instead to reap the benefits of an enormous price increase at the expense of others. These oil-reliant states are in a Mexican standoff, one in which they are all shooting persistently at the others’ (and their own) feet – OPEC powerhouse Saudi Arabia included.

Continued and conflicting statements from oil ministers representing OPEC and non-OPEC states have done little more than increase the volatility in an already volatile market. Maybe they just like the sound of their own voices. On the other hand though, it moves markets in the perfect position to benefit in the lead up to Algiers.

Another meeting at which an agreement is not reached risks another slide for crude oil price, yet there are factors in play that may help support price if this is the case. As the possibility of a Fed rate increase next week (and maybe even this year should the run of poor US macro data continue) fades, the USD-denominated crude oil market is buoyed. Further still, rising lows since the depths of the 12 year trough at the beginning of the year continue to support oil price. Even global growth, sluggish but still positive, has not collapsed. Add to this the strength of other commodity markets, most notably copper and other precious metals, on the back of an increasingly positive outlook for Chinese demand, and oil looks surprisingly strong.

Should OPEC and the other major producers shoot another blank this month and agree to disagree, it may not be the catastrophe many predict.

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Joe Nguyen, Trader – 16th September 2016