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Doha - The Contrarian Consensus

|Includes: The United States Oil ETF, LP (USO)

Firstly, almost no one is expecting anything good to come out of Doha. The consensus is that the 'oil market' has priced in a freeze deal, but almost all commentators say a deal won't happen. To me, that means the oil market must have priced in nothing happening. I believe this to be the case. Who are these mystery people that allegedly believe something solid will now come out of Doha? Exactly, there are very few left, making the contrarian view the consensus view. In saying that I think few are expecting a complete breakdown in Doha, that would be the downside surprise. As a side note,Saudi Arabian Oil minister Ali Naimi is confirmed to have arrived in Doha.

Secondly, the latest is that Iran is not even attending at all and has increased production significantly in April. The Saudi crown prince confirmed his view that they won't freeze unless Iran does, and Iran was never going to freeze.

Much more concerning to me than Doha is the increase in Iran production, alleged to be around 550,000 barrels a day in April. Before you panic, what's not clear is how much of this is backlogged from all the issues Iran has had with tankers. Will this runrate sustain? It's too early to tell, but be sure that the flood of reporting on this that will not cover it's sustainability will likely hammer the oil price regardless, especially if Doha talks break down.

What confuses me on this whole topic is that if you and I know that Iran was never going to freeze, it's naiive to think any attendee at the Doha meeting doesn't already know that. Why do analysts and others think they are so smart and the Doha attendees are mindless? If the Saudi's will hold to their word, there is no meeting here. Why was it not canceled then? I guess we'll find out.

My long view on oil hasn't yet changed. The news will drive the price in the short term. In my view the Iran news will ride on the back of a failure in Doha and drive us down for a while until Tuesday where the oil market will then myopically focus on API and EIA. It's impossible to trade oil or oil equities right now and we still have a few months before we really know how 2016 will shape up.

On the positive side, there have been some intteruptions in South America and Nigeria that will keep some barrels offline temporarily.