Even Goldman Says OPEC Doha Meeting Will Be A Dud: “Don’t Expect A Bullish Surprise”

Two months after speculation and recurring headlines of an “imminent” OPEC meeting to first cut, then merely freeze (at record output levels) oil production, a meeting in which Iran is certain to not comply with any production curbs and the all important Saudis following suit, not even Goldman believes there is any upside from the meeting scheduled for this upcoming Sunday.

This is what Goldman commodity strategist Damien Courvalin said in a note released overnight.

OPEC and non-OPEC producers will meet next Sunday (April 17) in Doha to discuss a potential production freeze. We do not expect the meeting to deliver a bullish surprise as we believe production cuts make little sense given it has taken 18 months for the rebalancing to finally start. In addition, any resolute agreement that would support prices from current levels would prove self-defeating, in our view, as we believe that sustained low prices are required for the nascent non-OPEC supply adjustments to deliver a deficit in 2H16. Finally, a production freeze at recent production levels would not accelerate the rebalancing of the oil market as OPEC (ex. Iran) and Russia production levels have this year remained close to our 2016 average annual forecast of 40.5 mb/d. Importantly, the stable level of production achieved during the first three months of the year is due to transient disruptions whose reversal could add 500 kb/d to OPEC production, with Iran, the Neutral Zone and Libya potentially providing additional production growth in coming months. As a result, we see risks that even a production agreement could be followed by sequentially rising OPEC production given the multitude of potential sources of production growth.

Ultimately, while the market seems to have taken comfort in some form of OPEC help, press reports over the past weeks suggest that a production agreement is far from guaranteed. Net, we see greater odds that the Doha meeting delivers a bearish catalyst for oil prices. Interestingly, the oil options market is associating no risk premia to this meeting with Jun-16 Brent ATM implied volatility below Jul-16 ATM implied vol, the first time this has occurred heading into an OPEC meeting since June 2014. While it is difficult to assess consensus expectations ahead of the meeting, we believe that this upward sloping volatility curve is mispricing the potential moves on Monday, April 18, with our bias for lower prices. Finally, while we forecast that the balancing of the oil market will bring crude oil prices sustainably back into backwardation later this year, we believe that the recent flattening of the Brent forward curve is only transitory, reflecting the combination of production maintenance, especially in the North Sea, in the face of seasonally rising Atlantic basin refinery runs. As a result, we continue to believe that the balancing of the oil market requires sustained low prices with our 2Q16 forecast of $35/bbl.