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Why I Think OPEC Will Cut

|Includes: BBEPQ, LGCY, MCEP, OIL, ROAN, The United States Oil ETF, LP (USO)

The drum beat for an OPEC cut started getting louder in the week of January 25th. We heard that Oman would cut if asked, Iraq would cut. We then heard that Russia is potentially open, and of course we know venezuala is on-board. Each time these rumors came out, there were many people to throw cold water on them, especially the major media outlets. Analysts call the idea 'extremely unlikely' amid extreme pessimism of a cut.

Now, we've heard all this before, Venezuala has been calling for an emergency meeting for a long time. I have believed that these countries have been publicly sending each other messages, and the strongest ones came from Iraq, Oman and Russia.

If you look at this article

"Iraq, Algeria, Nigeria, Ecuador would join OPEC members Iran and Venezuela and non-OPEC producers Russia and Oman in if talks are scheduled, the South American country's oil ministry said in an e-mailed statement." The Venezualan oil minister is going to visit Qatar and finally Saudi Arabia. We haven't heard who is not participating, such as UAE or Kuwait, but my guess is that Saudi Arabia asked to be last, which to me is telling. I believe that if Saudi knows others will cut, they will appear to begrudgingly agree, when in fact they cannot wait to turn off the taps. I expect us to have closure on this before February is out. An OPEC cut doesn't fix everything, but I believe it will get us firmly back to $50 and help us stay there until the oversupply can be worked off. That will be enough of a rise to help the market have a soft landing and continue to rebalance, but not enough to put the market back in an oversupplied state where OPEC loses market share, which has been the biggest fear all along.

We'll see.

Disclosure: I am/we are long MCEP, BBEP, LGCYO.