As the OPEC meeting in Vienna on 30 Nov draws near, oil price increased by about 10% to 22 Nov since its recent low of US$43/bbl in mid Nov, as the market was expecting OPEC to cut production; recall that OPEC reached a preliminary agreement in Algiers on 28 Sep to reduce collective output to 32.5-33.0m barrels a day, compared with the group’s estimate of 33.6m in Oct. In the last few days, however, the oil price has corrected and is now only about 5% up since its recent low.

Besides the chances of a cut, market watchers also have doubts regarding the efficacy of a cut, as countries such as Iraq, Iran and Libya (together account for about a third of OPEC production) have requested to be exempted from the deal. More US oil production could also come back with higher oil prices, blunting the effect of any OPEC production cut. Maintain NEUTRAL on the broader sector.

Source: OCBC Research - 28 Nov 2016