Twitter Says OPEC Will Extend Production Cuts 6 Months In May [Trader Poll Results]

This week, we put the oil market’s biggest open question to oil traders on Twitter. What will OPEC do in exactly one month when the group meets to decide whether to extend the production quotas implemented in November 2016?

We polled the most influential oil trading group on Twitter (#OOTT) on potential outcomes for the May 25th OPEC meeting. This hash tag stands for Organization Of Oil Trading Tweeters. It has quickly become the most important and active platform for crow-sourced news and analysis in the oil market today.

The turnout on this survey was pretty solid, with 40 responses submitted. And Twitter overwhelmingly says… the must bullish outcome is the most likely. 75% of respondents expect an extension of the cuts through year-end.

It will be a critical meeting. OPEC delegates will be tasked with deciding whether to keep the cuts that have supported oil prices even in the face of surging US oil production.

Some view the quotas as largely symbolic due to accusations of cheating by OPEC members. But the decision will inevitably set the stage for the back half of the year for most of our readers.

Why should we care what Twitter says? Two reasons – i) #OOTT carries some weight in the oil trading community now and we believe the respondents to our survey are well informed, and ii) this poll sets the bar, establishing consensus expectations for the meeting.

Given high expectations for OPEC in May, we believe the risk/reward balance is skewed negative on this event (i.e. there is less upside from an extension than downside from a quota breakdown).

  • If the cuts are maintained, look for oil prices to move into the mid- to high-$50s. In this case, we believe US E&Ps are likely to outspend their initial 2017 capex plans, and explosive US oil production will likely fill any gap created by OPEC (but we’ll worry about that next year).
  • If the cuts are ditched, oil prices are likely to plummet into the low-$40s or lower as the market will brace for a deadly combo of rising OPEC production and rising US production. The result will act to curb US spending and production growth, but not before some significant pain.

If OPEC really wants to slow down the shale boomerang, they’ll ditch the cuts. But it’s possible they are now resigned to ceding share to gritty US producers who have found a way to grow again with oil prices tracking at half the recent highs.

Although we don’t forecast oil prices here at Infill Thinking, our view has been in-line with the results of our poll for most of the year. Our view has been that OPEC will continue the cuts in order to improve inventory drawdowns in the back half of the year. This was a concept we expressed while delivering the economic outlook at the industry’s largest human capital conference last month.

We also believe the recent hiccup in oil prices around CERAWeek helps push the group towards a cut extension to keep Brent floating in the low-$50s, which is about where we think OPEC wants it at the moment.

Plus, if Twitter says it, it’s gotta be true right? A final thought… our survey shows that consensus is very firmly established around a bullish outcome now. That always makes us a bit nervous – when everyone expects the best and is disappointed… well, let’s just hope OPEC delivers.

There’s a lot more stories like this… 

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