The market setup has reached a binary turning point: 1) priced for deal extension cuts well into 2018, 2) for continued stock draws with strong products demand and 3) for “explosive” Middle East related headlines (via funds large long positions on the $80 & $85 strikes).

The record-smashing long investor positioning, as we close onto November 30th, is a testament to the strength of the bullish narrative and how portfolio flows gushed to enter the front of the curve. Memories of the post-May market selloff may well be the strongest argument yet for this not to repeat.

In this report we look at consensus calls for the OPEC meeting and share our trading thoughts.

Market sentiment shifts from re-balancing to tightening as a flurry of data, supply concerns and headlines feeds higher momentum.

All stars aligned for OPEC as it “manages” the paper market with leaks of $60/bbl floor for 2018 and full-year extension cuts are fully priced in – Our trader view points to a market now at risk of disappointment coming into Nov 30th meeting.

Oil price strength triggers buying from “passive” index funds and airlines/consumers. Macro funds buying calls for a move to $70/bbl on favourable momentum signals, fundamentals and geopolitics.

Dwindling stocks brings explosive upside potential near-term with supply buffer all but disappeared, while global production outages hits 6-year lows.

The oil market has moved past the collapse in distillate without a blip. Strong macro signals and refined product stock draws keep refining margins above 5yr averages and supportive oil prices.

WTI-Brent arb doing a lot of the heavy lifting to fix global imbalances. Producer hedging dried up permitting CAL18 Dated Brent to cross the $58 bbl level.

It was great to attend the annual Oil & Money conference in London this past week.

Interestingly, natural gas was allocated a full day, highlighting its importance in Big Oil’s energy transition. Geopolitical risks, US shale and the Saudi/Russia alliance in steadying OPEC and establishing a floor in oil prices were some of the key focus points.

Our trading/ hedging takeaways: Saudi/Russia put makes for derivative dislocation opportunity, completion and startup of a number of natural gas projects suggest hedging strategies need to be adapted and geopolitical risk premium to return with vengeance and not priced in.

These are some of the key themes we will be incorporating into our risk-management & hedging discussions in the coming weeks.

Saudi put firmly in place. OPEC “managing the market” with headlines , suggests shallow pullbacks, higher lows.

Cautious optimism reigns. Hedge funds buying short-dated puts and oil producers using rallies to layer in hedges. However, backwardation breeds backwardation, investor thirst for yield, weak USD and the consequences for incremental money flows into the oil complex should not be underestimated.

Flush of data (IEA, OPEC, EIA month reports, Q3 shale reports) and headlines (KRG, Iran sanctions and Venezuela state elections) can bring fundamentals and geopolitics to a crescendo near term.

Fundamentals, macro drivers and explosive geopolitical risks underpin a healthy backdrop to the crude oil market into the OPEC meeting on 30 November.

Sentiment is upbeat, while record net length in Brent poses the greatest risk for a pullback. Higher prices brought responsive selling from producers over the past week.

We target $52.50/bbl as a floor and recommend producers capitalize on technical positioning and temporary “washouts” to restructure and optimize hedging portfolios and strikes.

All the excitement in oil is focused and positioned on the very front of the curve. The result has been a phenomenal, multi-year record move in timespreads.

In a classic case of market trading psychology at its best, the “collective amnesia” concerning fears present only a few weeks ago has now turned into consensus bulls. We believe the time to be screaming bullish was in June/July (as our clients and readers of this report know). With product markets tight in the Atlantic, the picture for Brent is constructive – certain signals we monitor point to a situation that has done too much, too fast.

We look at “what now” and – what are the signals to monitor for another inflection point: