OPEC (Update): Oil market pricing in 'no quota change' scenario, ministers' decision delayed

Oil markets are pricing in a 'no change scenario' in terms of OPEC's production, with the 12 member producers’ collective poised to confirm this later on Friday.

The quota decision was expected at 1500GMT, but has been delayed with oil ministers breaking up for a second session, according to sources.

City traders noted high levels of short covering earlier in the session, followed by a sell-off late afternoon awaiting the OPEC decision.

At 1528 GMT, the Brent front month futures contract was down 2.08% or 91 cents to $42.93 per barrel, with none of the initial soundbites from influential Middle Eastern producers, led by Saudi Arabia, suggesting a cut below OPEC’s 30 million barrels per day quota was on cards. Quite the contrary, latest data points to its production being well in excess of 31 million bpd.

Speaking before the day's OPEC proceedings, Saudi Oil Minister Ali Al-Naimi said he “would listen to other members' concerns” about the state of the market.

That has led market commentators to opine the Saudis might be more amenable to a cut in 2016, should non-OPEC heavyweight Russia come on board and there is an uptick in demand, while resisting a cut on Friday.

A spot poll of nine analysts in Vienna, Austria by Sharecast, had all opining in favour of a no-change scenario at OPEC.

Jason Schenker, President of Prestige Economics, said,"I expect no change in OPEC's stance given the current market dynamic. I often regard OPEC to be a sort of a central bank of oil. By that argument, should they keep their policy as it is, it will be bearish for oil prices over the short term. But from a macroeconomic standpoint, low oil prices thus facilitated by OPEC, would be pretty stimulative."

Additionally, analysts at Barclays, Deutsche Bank, IG Markets and CMC Markets are all expecting a similar outcome, as is ratings agency Fitch and commentators from global advisory firm EY.

Michael Hsueh, analyst at Deutsche Bank, said, "We do not expect a quota cut from OPEC oil ministers on Friday. There are alternatives to a cut, which fall generally under the heading of verbal intervention of some flavor. Hawkish commentary costs nothing and may help to boost prices and revenues for cash-strapped OPEC member nations. However, talk alone will have little lasting effect."

Earlier in the session, United Arab Emirates Minister of Energy Suhail Mohammed al-Mazrouei told reporters he expects “oil demand to rise in 2016” albeit modestly. “A lot will depend on where the market demand is.” In response to a question from Sharecast on the impact of a possible interest rate hike on commodity prices, al-Mazrouei said, “It was one of the factors to watch out for over the coming months, among others.”

Meanwhile, Iraq’s Minister of Oil Adil Abd Al-Mahdi said, “Should individual OPEC producers increase their production it cannot be frowned upon. For instance, if Iran ups production, I would say they are entitled to.”

However, Venezuela’s Minister of Petroleum and Mining Eulogio Del Pino said the policy of pumping as much oil on to the market was “unsustainable”.

“OPEC production costs are in any case lower than US shale producers, how they perform within the market is up to them and should not be a consideration for us. The oil price is at a critical low and we must address this.”