Oil prices rose Monday as ministers from OPEC countries began gathering for a meeting in Algeria and amid reports that Saudi Arabia had offered concessions to Iran to secure a production cap to support prices.
Brent crude futures were up 61 cents, or 1.3%, on Monday to $46.50, while West Texas Intermediate rose $0.44, or 1%, to $44.92, after briefly breaching $45 earlier in European trading hours.
Monday's gain followed a 5% slump last week, which followed an increase the week before, which....well you get the point. Oil markets are skittish and likely to remain so. Implied volatility, which measures movements in oil prices, on Monday hit its highest mark since April, when OPEC last met.
But despite all the volatility oil remains range bound at between $44 and $50, the lower mark being just below the $45 that appears to be the minimum Saudi Arabia can stomach, while $50 is the generally agreed mark at which marginal U.S. shale operators come back into the market.
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The truth is that nothing that comes out of the informal OPEC meeting, which will happen on the sidelines of the International Energy Forum taking place in the Algerian capital of Algers from Monday to Wednesday, is likely to drive oil out of that trading band. That is because nothing that is being discussed will alter the fundamental fact that there is more oil in the market than there is demand.
To be clear, what is on offer from OPEC is a possible production cap, not a cut.
That would mean a freeze in production growth at a moment when Saudi Arabia's output is running at near capacity, Kuwait and the United Arab Emirates have set new production records and Iran is back to pre-sanction levels. In other words it would be a freeze at a point where OPEC production, at about 33.47 million barrels per day, up 930,000 barrels on a year ago, is near its all-time record, as the International Energy Agency noted two weeks ago.
With Russia also running its pumps at near capacity, global oil production will continue to outweigh supply into 2017 and possibly through to the later months of next year, according to analysts including Goldman Sachs and the International Energy Agency.
That doesn't mean oil won't crest $50 in the unlikely event of a production cap being agreed in Algeria, though a handshake and a nebulous promise to work together to support oil prices remain the most likely outcome.
But sentiment is fleeting in the face of market reality. And the reality for oil is one of continued oversupply at less than $50 a barrel, which is where prices will almost certainly remain for the rest of this year.