There is strength in numbers -- provided your particular gang isn't a bunch of infighting walking wounded. Iran's OPEC buddies fall into the latter category, which is unfortunate both for them and for hair-trigger oil investors trading on every muttered aside ahead of Friday's OPEC meeting.
Look at the price chart with this column and see if you can spot the moment on Wednesday morning when news flashed across the wires that an Iranian oil official had said a majority of OPEC's members agreed on the need to cut production.
Stirring stuff, that. Except that, if OPEC were a clubhouse, it would certainly have both a common room and a VIP-only lounge. And the members beyond the velvet rope aren't on board.
The same official was cited as saying that Saudi Arabia and the Gulf states were not agreed on cuts. Which is like proclaiming a reunion tour of Destiny's Child but adding, sotto voce, that Beyoncé will be off doing her own thing. To understand why, take a look at the chart below.
While Saudi Arabia, Kuwait, the UAE and Qatar are just four members out of 12, they account for more than half of the barrels OPEC produces. They also hold 92 percent of OPEC's thin cushion of effective spare capacity, under the International Energy Agency's definition. It might also be added that Saudi Arabia has by far the biggest financial reserves of any OPEC member, giving it greater resilience to a period of low oil prices, and with its Gulf state neighbors faces a common geopolitical threat in the form of, you guessed it, Iran.
It makes no sense for Saudi Arabia to abandon its strategy of prioritizing market share while higher-cost rivals have yet to surrender fully to the pain of lower prices and meaningfully cut output. Later on Wednesday morning, the U.S. Energy Information Administration released another set of weekly numbers showing excess oil continuing to flow into storage and, worryingly, a year-over-year drop in gasoline consumption last week in the world's largest market.
Yet with Friday looming, and many desperate oil officials gathering in Vienna, investors can expect more comments like Iran's to keep flashing up on their screens. With speculators in a very bearish crouch in the futures market, this heightens the risk of short squeezes juicing oil prices. If you're tempted to join in, just make sure you have read the fine print first.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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