Investing.com – Amid skepticism over the capability of the Organization of the Petroleum Exporting Countries (OPEC), Morgan Stanley (NYSE:MS) still pointed out that the cartel has the power to talk up prices and warned about taking bearish positions in oil ahead of the November 30 official meeting.
OPEC reached an agreement to cap output to a range of 32.5 million to 33.0 million barrels per day in talks held in Algeria in late September with details on individual quotas to be finalized at the next official meeting in Vienna on November 30.
These analysts insisted in a note to clients that “poor fundamentals don’t prevent headline-related price reversals.”
They noted that “OPEC can still spook markets” and has been “adept at talking up declining markets”.
“The group has repeatedly made bullish announcements about OPEC intervention during periods of low liquidity (e.g. US holidays), and whenever short positions become large,” they explained.
Though Morgan Stanley admitted that skepticism of OPEC’s capability to follow through is warranted, the broker warned that prices still move on these headlines.
“Investors have proven that they are not willing to press short positions against OPEC, even if the odds of intervention are low," these analysts suggested.
"In essence, this is similar to the old adage of ‘Don’t Fight the Fed’,” they said.
These experts feel that, if prices continue to slip, the chances for bullish OPEC headlines grow and could move prices despite the lack of follow through.
They pointed to the $40 mark as a price point at which the cartel normally begins to talk.
“Thus, the cartel may choose to announce a headline deal to lift prices, even if there is no plan to execute it,” these experts warned.
“In other words, plenty of uncertainty and event risk remains,” they concluded.