Five options
Mr Dhar, who expects Brent prices to average at $US46 a barrel in the fourth quarter, listed five possible outcomes to the Algiers meeting, ranked according to likelihood and including their anticipated effect on oil prices:
Statement that members are on the same page: likely. Price moves up (~$US0-$US2/barrel)
Agree to freeze production later: somewhat unlikely. Price moves up (~$US3-$US4/barrel)
Meeting ends in disunity. Somewhat unlikely. Price moves down (~$US1-$US3/barrel)
Production freeze: unlikely. Upwards price movement (~$US4-$US5/barrel)
Production cut: highly unlikely. Big upwards price movement (~$US5-US10/barrel)
RBC Capital Markets global head of commodity strategy Helima Croft said oil producers were much more likely to come to an agreement than earlier in the year, adding she expected an Algiers statement to "strongly suggest a willingness to act" at OPEC's next official meeting in November.
"Many of the biggest and most influential producers are close to maxing out and hence may judge that there is little downside to agreeing to cap output at current levels or sign up again for a collective ceiling," she said in a note to clients, warning that investors should think twice before shorting the oil market.
As to what a future agreement might look like, Ms Croft said she didn't expect OPEC to return to hard production quotas, but said a system that allowed countries to produce within a band or range was the most likely solution, which would be moderately bullish for the market.
"Most notably, a unified cartel would help to install a floor in the market, as quantifiable measures should hold members accountable."
AKK Price at posting:
0.7¢ Sentiment: Buy Disclosure: Held
