Oil Market Turns Skeptical About OPEC’s Ability to Deliver Cuts

(Bloomberg) -- Oil bulls struck gold in late September, when prices surged due to an unexpected OPEC agreement in Algiers to cut crude production in an effort to steady global markets. Now the bulls are looking for more help from the producer club as prices slide. Here are signs of the market's growing skepticism that a meaningful accord can be achieved.

1. Oil price tells clearest story of all

Futures surged after the outline of a deal to limit collective production was set out in Algiers on Sept. 28. Now that rally has all but unraveled as the market looks for signs that the accord can be delivered.

2. Timespread shows physical market glut

The price difference between Brent crude for January and February supply widened to record levels in recent days. Traders said rising output from Libya, Nigeria, Kazakhstan and Russia are adding to a near-term global glut, helping to broaden the spread.

3. Slumping U.S. inventories aren't helping

U.S. crude stockpiles dropped to their lowest level since January last week, contrary to a forecast from analysts surveyed by Bloomberg and American Petroleum Institute data showing an increase. Despite the decline, oil prices subsequently slumped. Industry data suggest stockpiles may grow this week.

4. Options market turns increasingly bearish

Options contracts are moving in a pattern that indicates traders are hedging more against price declines than increases. That bearish bias on the nearest Brent derivatives -- known as the put skew -- has risen to the highest level since Sept. 1.

5. “Very aggressive bears”

Open interest, a measure of contracts outstanding, and speculative net long positions, an indication of buying activity, in Brent and West Texas Intermediate combined are near levels not seen before. Those factors may cause the oil market's bulls to become “very aggressive bears” if OPEC fails to reach a deal, Tamas Varga, an analyst at London-based broker PVM Oil Associates Ltd., said last month.

6. Many producers are going flat out

Among nearly all the world's major oil-producing nations, the crude keeps on flowing, even as prices slump. OPEC is pumping record amounts, while Russian output is at a post-Soviet-era high.

7. Key technical levels give way

Brent closed below its 50- and 100-day moving averages Nov. 1, two technical lines of support for the contract. The last time this occurred was Sept. 27, the day before OPEC's Algiers meeting.

To contact the reporter on this story: Alex Longley in London at alongley@bloomberg.net. To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net, Brian Wingfield