Bearish positions before the OPEC meeting- Not Smart

by Mike Elliot | Wednesday, Nov 9, 2016 | 109 views

With increasing skepticism over OPEC’s capability, Morgan Stanley has mentioned that the members have the power to take the oil prices higher and one should avoid taking any bearish positions before the official meeting of OPEC which is to be held on 30th of November.

OPEC agreement

OPEC members have been able to reach an agreement which will reduce the oil production by 32.5 million barrels to 33.0 barrels in a day. This was decided in September in a meeting that was held in Algeria. But while the agreement was agreed upon by the members, the individual quota is not yet decided and decision regarding the same are expected in the November 30 meeting.
Analysts at Morgan Stanley have mentioned to their clients that poor fundamentals will not prevent any major price reversals in oil. They also said that OPEC has made several bullish announcements when there was low liquidity in the market and when there was an abundance of short positions. While the analysts agreed that it is important to warrant the capability of OPEC, they also said that the price of oil still moves as per the headlines.

Avoid short positions before the meeting

The analysts said that investors have already proven about not pressing short positions in oil even if intervention chances are pretty low. In a way, this situation is similar to the adage- “Do not fight the Fed”.
Analysts said that if the oil prices continue to fall, this will further increase the chances of bullish headlines and the price will start moving in green even if the headlines are not true. They also said that OPEC starts talking when the oil prices are around $40. So, they can actually make some bullish announcements for increasing the prices even if they don’t really plan to execute the announcement.

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