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BP share price was trading almost flat at the end of last week only to dip on Monday following a decline in oil prices. But both the oil price and the BP share price could be facing a couple of tumultuous weeks ahead. The likely scenario can be divided into pre-OPEC and post-OPEC issues.

BP share price faces possible correction post-OPEC

The Organization of the Petroleum Exporting Countries (OPEC) and other major oil producers like Russia are due to meet in Vienna on 30 November to discuss cutting production in the next six to nine months. The countries are collectively trying to reduce production of oil using October 2016 levels as the starting point to avoid overproduction and stop prices from falling. The cuts implemented so far have gone a long way and oil prices have risen from around $50/bbl at the beginning of September to over $62/bbl.

In the pre-OPEC scenario oil prices, and consequently the BP share price, are likely to move slightly higher because fund managers on both sides of the Atlantic have been positioning themselves to buy oil. According to Societe General Cross Asset Research US money managers have been increasing their buy positions in oil for the last six weeks and last week they poured another $950m into long oil positions. Similarly money managers in London have increased their net long position to the highest level since March this year, according to data from the InterContinental Exchange.

OPEC meeting represents major turning point

Both West Texas Intermediate oil traded in the US and Brent crude traded in London have risen in the last week and despite a dip on Monday seem to be returning to an upward trajectory. However, the OPEC meeting could be a turning point.

While Saudi Arabia and other OPEC countries may agree to cut production for another six to nine months analysts are sceptical about Russia and its commitment to produce less of one its biggest income earners.

Russia is the world’s biggest exporter of oil with crude oil and oil products combined, and it is earning approximately $5 billion more per month with the price of oil in the mid $60s than it would with a price in the mid $40s.

It seems counterintuitive that a country which is struggling with the after effects of international sanctions which are hampering some of its other industries would want to reduce its earnings. If Russia says ‘no’ to the cuts or even a lukewarm yes the oil price will react immediately because it has risen very fast over the last three months.

The repercussions for the BP share price will be immediate. What remains to be seen how big the oil price move will be.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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