Expectations heading into Sunday's meeting of OPEC and non-OPEC members in Doha, Qatar, have served to propel oil prices higher, with West Texas Intermediate and Brent crude posting new 2016 highs this week.
Analysts have repeatedly stressed that any agreement to freeze production at January or March levels, with the latter more recently mentioned, will not do much to reduce supply.
At the same time however, most of them saw scope for overall oil fundamentals to improved in the second half of 2016, which should keep crude prices from retracing back to the $26 per barrel lows seen earlier in the year.
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"The Doha meeting does not materially change the oil market balances, but makes official what is already meant to happen," said commodity analysts at Barclays.
"If recent supply-side fundamental support holds and the market's expectations for a credible statement and commitment are met, the meeting could help prevent prices from falling back to the low $30 range," they said.
Rather than expect too much from the meeting itself, Barclays suggested listening for "likely bullish statements from producing countries."
"A successful Doha meeting should help polish OPEC's tarnished image after a failed December meeting," they said.
The most likely scenario to come out of the meeting, given myriad uncertainties, "is a neutral to bullish outcome, simply because the market has very low expectations for the meeting and a gathering of producers will likely produce even more bullish headlines," Barclays said.
Getting OPEC and non-OPEC members to agree to a freeze will be no easy task and headlines on such discussions have been making the rounds for months now.
Qatar has invited all 13 OPEC members, along with Russia, Mexico and five other non-OPEC nations, to the April 17 meeting in Doha, various reports have said.
"At the time of writing, Saudi Arabia and Iran do not appear ready to give sufficient ground to get a comprehensive agreement done by Sunday," said strategists at RBC Capital Markets.
"That said, the sovereign oil producers' date night in Doha could produce one of several possible outcomes with varying market impacts," they said.
One bullish scenario would be if "an output freeze is announced and the meeting statement strongly suggests a willingness to adopt additional market management measures (including production cuts, should prices fail to pull higher," the strategists said.
Another bullish possibility would be if producers agree to freeze production, but the accompanying statement suggests that this will be "the primary policy option for now," they said.
RBCCM also outlined various bearish scenarios. The first would be if participants cannot agree about freezing production "due largely to a failure to forge a compromise between Iran and Saudi Arabia."
Under these circumstances the statement would have to suggest that there would be other meetings between OPEC and non-OPEC meetings later in the year, the strategists said.
In a more negative vein, should the meeting end "in bitter recriminations with various oil ministers publicly pointing fingers at one another for failure to reach an agreement," such an event would make "the June 2011 OPEC 'Worst Meeting' look like a walk in the park," they said.
And, there is still scope for the Doha meeting to be canceled or for key players not to show up at the last minute.
In light of the recent oil price rally, risk-reward heading into the meeting would suggest limited upside potential, the strategists said.
"Failure to come up with a concrete agreement and a subsequent plan of action does not translate into additional barrels on the market, but the kneejerk fall would stem from disappointing some market expectations given that OPEC has continued to feed a chorus of media headlines," they said.
Crude prices will likely be choppy under either a positive or negative scenario, but "carefully controlling the narrative remains paramount to further near-term upside," the strategists said.
In the bigger picture, RBCCM remained "confident that prices will take another leg higher in H2 on the back of rational fundamentals."
OPEC released its Monthly Oil Report Wednesday, noting that "speculators have amassed a near-record number of bullish bets on increasing oil prices."
At the end of March, "money managers held a net long position equivalent to almost 580 mb in the two main crude oil futures and options positions," the report noted.
In addition, while largely closing their previously record short positions, "hedge funds have more than doubled their net long positions from just 265 mb at the end of last year, according to data published by the two regulators and exchanges," OPEC said.
These hedge funds "have established a record net long position in ICE Brent crude futures and options equivalent to 357 mb of oil," the report said.
In terms of the balance of supply and demand for OPEC oil, "Demand for OPEC crude in 2015 is estimated at 29.7 mb/d, unchanged from the previous month and 0.1 mb/d lower than the year before; In 2016, demand for OPEC crude is projected at 31.5 mb/d, broadly unchanged from the previous report and 1.8 mb/d higher than last year," the report said.
NYMEX May light sweet crude oil futures were trading down $0.02 at $41.74 per barrel, after trading in a $40.84 to $42.16 range.
he front contract topped out at $42.42 Wednesday, the highest level since Nov. 30 and that day's peak of $42.61 is the next level of resistance. Beyond that, the Nov 24-27 highs in the $43.25 to $43.46 zone may cap.
From the 2016 low of $26.05 to yesterday's high of $42.42, West Texas Intermediate had rallied 62.8%.
Nevertheless, even at Wednesday's high, WTI was still down 32.2% from the 2015 high of $62.58, seen May 6.
ICE Brent held up $0.03 at $44.15 per barrel Thursday, after trading in a $43.29 to 44.62 range.
Brent topped out at $44.94 yesterday, the highest level since Dec. 1, when prices peaked at $45.18.
Both WTI and Brent remained above prior key resistance - now key support, in the form of their 200-day moving averages, currently at $40.87 and $43.40 respectively on the continuation chart watched by most market players.