The markets have priced in an extension of the oil production cut beyond this year, but with headlines emerging on a daily basis in the run up to the OPEC meeting, oil traders are playing footsie with these prices and will do so for the next couple of days. Commodity investors: this is where great timing and good market calls come in to play. The oil market is going to be volatile because of OPEC and because of the possibility of tensions with Iran.
ThinkMarkets chief market strategist Naeem Aslam, one of London’s few market participants to call the Brexit vote weeks before it happened, says OPEC is not the superpower it used to be.
“It is the U.S. shale oil producers who changed the game on them,” he says. “We said it before and we are sticking to our guns. For the price to see any meaningful change, we need a demand shock in the market. Should the price stay above $42, expect the U.S. shale oil industry to continue pumping oil. For a real solution, OPEC cannot operate on their own. They need to sit at the negotiation table with the U.S. shale oil producers.”
Saudi Arabia and U.S. relations have hit a new high note following President Trump’s visit. But Iran on the other hand….
Russia and Iran have a special relationship and so if Trump got rowdy with Tehran it would be just like pulling the trigger on regime change in Damascus. Moscow would not be happy, and may not even allow for it. In the oil world, look for Iran to be a trigger for oil and the volatility index in the months ahead (VIX 11.74 -0.30 -2.49%).
“The volatility index is a good indicator for investors in order to determine the amount of protection is best for their portfolio,” says Aslam.