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OPEC, Non-OPEC Meeting in Russia Will Make or Break Oil Prices: Market Recon

"Panic is a natural human response to danger, but it's one that severely compounds the risk." -- David Ignatius

Panic at the Disco There is a two-day FOMC policy meeting this week. Earnings season is in full bloom. The Senate will likely vote on the repeal of the Affordable Care Act this week. All of that, at least for today, matters less than will today's "routine meeting" in St. Petersburg, Russia as far as trader focus is concerned. The meeting includes the energy ministers of Russia (the host), as well as several OPEC giants. The purpose? This long-planned get together was meant to monitor the progress made by the 14-nation cartel along with 10 oil producing nations from outside the group in implementing already agreed upon production cuts. These cuts were meant to add up to 1.8 million barrels a day, and have been extended through April 2018.

This meeting is routine no more. Crude prices have been volatile, as traders have scrambled to find support levels. The problem? Markets simply doubt OPEC's ability to greatly influence the supply side of the pricing mechanism. While all indications are that deeper cuts will not be discussed at this time (that would have been bullish for oil), Nigeria and Libya will have to be talked about. These two nations were exempt from the original deal due to internal strife, and both have ramped up production greatly in the months that followed. Both nations have given the larger group the impression that they are willing to limit their respective production once both their production and their need for revenue stabilize. What that means exactly will be a point of negotiation. Then there's Iraq and the United Arab Emirates, both of whom are believed to be falling short of meeting their production cut pledges, and Ecuador. Ecuador has made noise lately that its need for revenue may outweigh its own pledge to the group cut/freeze.

Last, but certainly not least, there's the group that OPEC and Russia have absolutely no control over: U.S. shale producers. This group has largely increased production all year, taking advantage of any opening to gain market share while external producers cut back. This group drills at lower breakeven points than ever before, creating quite the problem for a cartel that appears to be in obvious decline. Where do oil prices land long-term? I see a long-term top for WTI in the $53 to $54 range, but that may be overly optimistic. The $47 level which had performed as support in the past, is seriously in play now as resistance. How the Saudis and the Russians handle any news flow out of today's meeting will dictate which gateway opens next, that $47 spot, or door number two, which is down around $43 (actually $42.75). We'll know soon enough.