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Opec is in a very interesting situation right now

The Opec's output has already dropped by nearly 33,000 barrels to 32.12 million bpd during November.

The common theme among traders is that the Opec is responsible for the extra supply that we have in the market. The extra supply is nearly over three to four million bpd - depending on which stats you are looking at.
However, before the much-anticipated Opec meeting in Vienna on Friday, the expectations are that there will be no change in oil production - and it held true as the group decided to maintain its production. The Opec's output has already dropped by nearly 33,000 barrels to 32.12 million bpd during November. Nigeria and Libya's production slipped by 141,000 and 55,000, respectively, while Iraq surged by 104,000 barrels. Iraq's production is increasing at a very rapid pace and the country is producing nearly 4.3 million barrels bpd.
Major threat for Opec 
The only element that will matter the most for Opec members is if they want to keep the united front or not. For the time being the Opec's production is well above the agreed limit of 30 million bpd and we do think that their production level could stay near enough 33 million bpd rather than moving lower.
If Opec members do increase their limit rather than reducing it, it will keep the new upcoming player (Iran) happy, which does have a tendency to produce a mammoth amount. However, by not cutting the supply, it will make a number of members very upset who are very uncomfortable with the price.
The biggest producer of oil among Opec members, Saudi Arabia, has repeatedly said that they do not control the price of oil and hence there is no guarantee from them when the price will move. Internally, the Saudis are on the path to announce major structural reforms so that they do not have to rely solely on their currency or foreign reserves to keep the price of oil where it so that they can drive non-Opec production dry.
Also, the country is under pressure to maintain its currency peg to the dollar, but we do think that this peg is under major threat. Any further decline in the oil price will put more strain on this peg and we could see it vanishing next year, if the slide in oil price intensifies further.
It is also important to keep in mind that in the past the kingdom has suffered from massive budget deficits, and they are not going to be afraid of facing the same situation again as long as they are sure that their policies are working.
Iran ready to pump 
Opec members are undoubtedly concerned about the production from Iran, which is going to hit the market as soon the sanctions will be lifted and how much it is going to push the supply equation higher. We already know that Iran is set to produce 500,000 bpd, but we believe that this is already priced in the market. What really will matter at this time will be if Iran delivers more than they have promised or if sanction show that the country does not have the infrastructure in place to produce the levels which the country is targeting.
We believe that it will be extremely hard to put handcuffs on Iran's production and the Opec will not have much say in the country's production - especially when current members are already not obeying their own rules. Even if they do obey their rules, the situation will be still challenging for Iran as the country has been starving for their oil cash, which they will generate by selling it.
US oil producers hedged their prices back in 2014 for their 2015 production; however, the situation is not same this year as only seven out of 23 have hedged 50 per cent of their estimated 2016 production. They are wary about the weakness of the price and taking extreme precautions with respect to this.
Places to see for bottom 
In order to find the bottom for the oil price there are two clear areas that can provide us a very clear indication if the demand is going to pick up and a price war is going to finish.
First, Chinese oil supply by producers where countries are introducing heavy discount to keep their market share. Saudi Arabia has once again gained the top spot in this arena by selling the most amount of oil, followed by Angola. Russia, which was at No.1, has slipped to third. So, as long as the price war continues in this market, there will be a little change in fundamental value, which could impact the long-term curve.
Second, the ISM manufacturing and industrial production data for the US, China and eurozone, which have been lacklustre, especially in the US. The ISM manufacturing data released for the US was extremely bad and if manufacturing is not picking up there, we have very little hope of any meaningful change in the demand equations. Although, for the eurozone, for China, this data is picking up some sign of life as their central banks remain committed for more stimulus packages.
The writer is the chief market analyst at Avatrade. Views expressed are his own and do not reflect the newspaper's policy.