OPEC meet: Mkts discounting an agreement, says ANZ Research

Daniel Hynes, Senior Commodity Strategist, ANZ Research expects crude oil market to come to a balanced position in the near-future.

World's largest oil producers are gathered at the Energy Summit in Algeria to discuss ways to support prices and to tackle a crude glut that has impacted prices for two years.

According to Hynes markets are discounting an agreement being reached at the above meet. However, if something positive comes out of the meet then oil prices will see strong move upwards. If no deal is reached at the meeting then oil prices are sure do see weakness but believes the downside for oil is limited because of the balanced positioning. The risk is skewed towards upside for now.Below is the verbatim transcript of Daniel Hynes’s interview to Anuj Singhal, Manisha Gupta and Latha Venkatesh on CNBC-TV18. Anuj: We have seen a bit of a bounce and of course it has been a bit volatile as well. But your sense of where the market is headed from here? A: Yes, it is really chasing headlines at the moment. All the comments coming out of the Energy Summit in Algeria are clearly buffering oil prices and nothing that is indicative of where the market fundamentals are at the moment as well. We see the global market coming close to the balance position over the next few months. So, clearly any continued growth in output out of Organization of the Petroleum Exporting Countries (OPEC) would potentially push that back into a little bit of surpluses. So, certainly market is going to continue to follow the outcomes of this meeting in Algeria and more clearly the signing issue in the shorter term for oil prices. Manisha: This scepticism really seems to be running high on whether or not this meeting will really yield anything because while Algeria has been making very positive noises Iran really seems to be downplaying the whole meeting? A: Yes, they are. They were the issue that I suppose couldn't get last agreement over the line. So, they are clearly playing high ball and are looking for at least further room for them to grow output considering they are only re-entering the international market. So, certainly comments from them will cater to whether this agreement goes ahead or not and the comments from Saudi Arabia that we are potentially cutting back production to a level to growth, did open up the possibility of some sort of agreement being reached. Manisha: So, whether or not a deal happens or doesn't happen in both these scenarios where do you see the crude oil prices going then? A: The market is largely discounting any agreement being reached. So, if we did see something come about then we would see prices really pushed to the upside quite strongly but outside of that I could certainly see things drift potentially even a little bit lower if agreement isn't raised. Although the downside still is relatively limited considering we are in a relatively balanced position now and from our perspective the room for OPEC to actually physically grow up from here is also limited due to them hitting up on their current capacity. So, the risks are certainly more skewed to the upside for the moment.