What’s Happening?

The big week has finally arrived with the International Energy Forum conference being held in Algiers, Algeria September 26-28. The main focus will be on the side meetings planned among major OEPC producers and Russia. Traders have been speculating for a month now that these meetings could lead to a deal to manage world oil production, bring the current market share war to an end and shore up energy prices.

Technicals:

After completing a double bottom back in February, WTI staged a big recovery bounce into the spring. Since May, WTI has been range bound, trading in a channel between $40.00 and $50.00. In recent weeks, the range has narrowed with smaller $42.50-$47.50 then $44.00 to $46.00 channels emerging. RSI swinging between 40 and 60 confirms the primary trend has been sideways.

In recent days, there have been big swings intraday and between days driven by various comments/posturing about what to expect from these meetings. Heightened trading action may continue through the conference and beyond depending on whether or not any progress is made.

Fundamentals

A market share war has been raging among major oil suppliers for two years now. Earlier this year, an attempt at a deal to manage production fell apart over Iran’s reluctance to freeze production while it was rebounding from sanctions.

Traders are hoping this time around that Iran is close enough to pre-sanctions levels that it could be ready to talk. Libya and Nigeria are also looking to restore production that had been curtailed by violence in those countries.

Russia has indicated it is open to a deal while Saudi Arabia has suggested it could cut back to January levels. OPEC production has increased through the year to meet and the International Energy Agency recently suggested it could take to mid-2017 for the market to rebalance on its own.

Saudi Arabia has indicated it isn’t expecting a deal this week but is hoping this could lay the foundation for more discussions toward a deal later this year. OPEC has suggested if a deal is reached an emergency meeting could be held for ratification.

The big questions if a deal is reached is whether production will be frozen at current levels, if anyone agrees to actually cut production and whether producers are targeting a specific price level or not. In recent months the $40-$50 range can been seen as a sweet spot below which too many producers aren’t making any money and above which the risk of US shale production coming back on line increases.