Getting an agreement to cut output in Algeria won’t be a piece of cake

With the US Federal Reserve and the Bank of Japan rate decisions out of the way last week, focus could now shift to something else. Like the expected weaker US Durable Goods Orders (out Tuesday, and according to Credit Suisse, set to drop to -2.3 percent in August compared to 4.4 percent in July), or the oil ministers meeting in Algeria, where speculation is rife that we could see some type of a deal between members and non-members of oil-producing cartel OPEC to curb output.

On the data? Nobody cares about durable goods, or any other piece of data, these days – apart from jobless data, of course. We expect that the global, and domestic, environment will continue down a slow- or no-growth path… anything else would just be a bonus. But the data points, apart from if they’re absolutely atrocious, aren’t going to change the Fed’s thinking. We are still on course for a hike by the end of the year.

On the Algeria OPEC meeting? They won’t agree to a curb in production. I will bet anybody an amazing cup of coffee. Sure, the Saudis have offered to cut their oil production…but only IF Iran also says it will cap its output.

First of all, the Saudis are pumping at maximum levels. For them to cut a bit, from record high output levels to slightly less than record…that’s like praising your child for eating 19 cakes in one sitting instead of 20. It kind of doesn’t make that much of a difference…and the kid should maybe not have been eating 20 to begin with.

And why should Iran go along to something as silly as that? From the Iranian perspective, they are not an aggressor (look at their history…they have actually never made the first move …yet they live in a part of the world where you have to puff up your feathers and appear larger and scarier than you actually are), and they are just coming back on to the oil market after a long hiatus of sanctions holiday. They have said before, we are happy to play oil-ball, just please let us get back up to the “normal” speed we were at before the sanctions were imposed on us.

Politically, this is a great play by the Saudis though. They aren’t technically friends with the Iranians, and would really like the world not to be friends with them either. So by the Saudis offering to eat one cake less, but only IF Tehran does the same…the Saudis come across looking great to all their other friends, and the Iranians look bad. The problem here is that the Persians only had one cake to start with. Coffee anyone?

The only caveat here is that OPEC meetings in Algeria have surprised in the past, and we saw cuts to output following meetings there in 2006 and 2006. Maybe it’s something in the Algerian water.

So where will market focus be for the rest of the year. First and foremost, it’s going to be on something completely new and different…namely, the never-before-looked-at-and-waited-on Fed. And a close contender for that top spot will be the US Presidential election. The question becomes: which will move the markets more. The US presidential election result or a 25 basis point Fed rate hike?

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