The crude oil prices have softened in recent weeks, following their post-OPEC meeting rally. It appears premature for prices to push up into the mid- $50’s before the provisional agreement reached at the end of September in Algiers is ratified.

OPEC’s technical meeting has started and the next few weeks will see the serious negotiations ahead of the end-November Ministerial meeting in Vienna. We retain the view that Brent and WTI will finish the year at $54/bbl.

Oil market balances for 2017 are marginally tighter this month than last, as lower assessments of OPEC NGL volumes and global refinery processing gains offset upward revisions to production estimates for Russia, the US and Canada, amongst others.

Nevertheless, we still see Q4’16 as marginally oversupplied, a bias that persists into Q1'17, before the assumed reduction in OPEC supply and stronger demand flips the market into drawing inventory for the rest of the year.

For now, we retain the view that OPEC is likely to achieve cuts approximating to 3% of 2017 potential output, although we lower the pct probability of a deal to 75 % from 80% previously.

Hence, we uphold longs in the Brent 55-60 call spreads having June’17 expiry, the rapid price gains of early October have been reversed and prices now sit close to where they started the month.

Headline-driven choppy price action will likely continue for the foreseeable future, with negotiating tactics calling for the use of public, as well as private, communication channels to extract maximum advantage by some OPEC members.

However, the longer term story remains intact and we remain of the view that holding upside exposure to oil prices is the right move at this juncture.

Nevertheless, the continuing volatility in oil prices leads to prefer exposure to upside price risks via a call spread, selling the $60 call against being long the $55/bbl call.