Oil has hit a 15-month high on the back of optimism over the Opec deal which needs to be sorted out by November 30. But, with a record long position building across the combined benchmarks, a disappointment could leave some exposed. Full report to come within the hour....
Article / 16 August 2016 at 9:30 GMT

Opec won't agree to an output freeze – here's why

Head of Commodity Strategy / Saxo Bank
  • The Algiers meeting next month will not result in a new deal
  • The Saudis' aim was to stabilise the market and they succeeded
  • The verbal intervention altered sentiment and chased out shorts
 There's more than one reason why Algiers won't product and output freeze. Pic: iStock

By Ole Hansen

The verbal intervention in the oil market which initially came from weaker Opec members got a strong boost when Saudi Arabia's energy minister joined in last Thursday. While weaker members desperately need higher prices, Saudi Arabia's agenda was more likely to try to stabilise the market after having seen oil prices revert to a bear market in the weeks following the Brexit vote on June 23. 

What the Saudis actually succeeded in doing was to influence market sentiment and thereby force a reduction of what was a rapidly expanding speculative short position in the futures market. 

August and especially September tend to be challenging months for the oil market with oil supply rising as refinery demand slows. By preempting these developments a better sentiment has been engineered. The fear of freeze action will potentially be enough to dissuade traders from going aggressively short into September, a month where oil has falling for the past five years.

Seasonal weakness in September

Source: Bloomberg

Freezing at what for some are record levels while others are struggling (Nigeria and Libya) does not make much sense. The rebalancing process remains under way and higher prices will eventually be seen. But as long the market continues to struggle with an overhang of supply, price stability closer to but not above $50/b is probably the most Opec can ask for at this stage. 

While talk of a production freeze did most of the work to lift the price during the past week the continued weakness of the dollar has moved into the driving seat this Tuesday. The yen has been rising towards its key 100 level while the euro has traded up to €1.1270, a level not seen for eight weeks.

Bottom line: I do not expect Opec to freeze production at the International Energy Forum meeting in Algiers on 26-28 September.

Brent crude is challenging $48.45/b, the 61.8% retracement of the June to July selloff
Brent Crude oil, first month cont.
Source: Saxo Bank. Create your own charts with SaxoTraderGO click here to learn more

– Edited by Clare MacCarthy

Ole Hansen is head of commodity strategy at Saxo Bank. His Twitter account was cited by MarketWatch as one that investors should follow in 2016.

16 August
asena asena
Hi, Ole
16 August
asena asena
Due to ''price stability closer to but not above $50/b'' Should I close my position at UKoil, costs 48, 49$, :)
16 August
Ole Hansen Ole Hansen
@Asena. I'm not able to provide direct price advise in this forum for compliance reasons.
16 August
Ole Hansen Ole Hansen
A good run down of Opec's options from Reuters:
16 August
The Grinch The Grinch
Conditions on the Arab peninsular are far more unstable than perceived by most. The Emir have no option but to keep pumping in order to keep the everybody happy.


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail