Okay, I'll be brave with this; as I have not yet finished my first cup of Sunday morning coffee.
The linked story below is a decent overview of thoughts and statistics regarding crude oil production, those involved and a plan to increase pricing by reducing output. This isn't "hot off the press" news, as the plan was noted several days ago. However, does not the plan have some problems? Supply and demand are very basic economic principles and have been in place for a few thousand years, at least relative to a large human population.
Overall, the apparent plan is to kill off the 500 or so shale production and related U.S. companies. Okay, so the "holes" are already in the ground for much U.S. crude production; and being that some of the valves have been placed into the "off" position for the time being.
Not counting outright speculators/futures traders and similar; I don't find how an output reduction in crude by OPEC and friends provides any long term price recovery for these folks at this time.
The linked write also has the "comments" in tact for review, after scrolling past some photos, etc.
What say you?
http://www.telegraph.co.uk/finance/oilprices/12120946/Opec-pleads-for-Russian-alliance-to-smash-oil-speculators.htmlLastly, my global economics master's degree is from "Wossamotta U."; so I may not know what I am writing about.....
Take care,
Catch
Comments
Wossamotta U ....lol! Good one! 500, you say? I remember a movie: 300. Soooo, let's say the top 100 do 80% of the oil business. How hard would it be to talk to them and get them on board? (I just picked a number for this example, so don't hold me to it.) My point being, who knows who is talking to whom? All have the same goal, and, I'm sure, they've all seen enough pain. Also, things tend to happen when you're not ready for it.
God bless
the Pudd
p.s. Where's Dennis Gartman? He would know what to do.....in yen terms.
I remember articles in the 2000s which said OPEC was basically dead in ability to control prices because of all the swing suppliers that had come up that wouldn't act like a cartel.
But there are some good points in these statements to heed.
The head of OPEC is talking about destroying the investments across the world with these low prices so that when demand recovers they wouldn't be able to supply to that demand. Wells run dry and they have to keep exploring and/or drilling new wells which takes time and investments. The interesting statistic from his statement is the historically low margin for capacity they have at the moment of just 2%. In other words, that is all "turning on all shut production" of existing pumps worldwide can create.
High volatility in prices from unmet demand spikes doesn't help them either as it prevents efficient planning for production.
As for the hedging by frackers, there were articles mid last year when people were saying that they would run out of those options by October and would face liquidations. Nothing really happened. There were articles in Oct suggesting that the bounce back in oil prices was increasing the amount of hedging by domestic frackers again and encouraging more production which would halt the price bounce and hurt them. So Saudis aren't the only ones trying to shoot themselves in the foot as the popular narrative goes. No one seems to mention that the low oil prices is significantly hurting ISIS revenue to fund their operations.
What I would like to know is who was on the other side of those hedges paying out billions of dollars to the frackers? Why isn't anyone talking about that?
Then there is the problem that prices are set by highly leveraged paper barrel supply and demand and how realistically it tracks the physical supply and demand before and after the investment banks exited those trades.
I don't think the situation is as simple as any of these simple narratives from each side would suggest.
Russia Cries Dyadya (Uncle), Is Saudi Arabia Listening?
By Dalan McEndree
Posted on Mon, 01 February 2016 23:30 oilprice.com
....skeptical observers dismiss ( recent talks concerning a crude production strategy) these statements’ implications at their own peril. Both the Saudis and the Russians are serious, as both have powerful motivations to agree on measures to balance the market through production cuts, reduce crude inventories, and increase prices.
The real question, instead, is whether their interests are sufficiently congruent to agree to simultaneous moves to balance the market.
With Their Economic Situation Dire, Are the Russians Desperate?
Over the last several months, as crude prices have renewed their plunge and taken the Ruble with them, Russian economic prospects have deteriorated sharply. Even a cursory review of press reports reveals the intensity of the economic pain.
At the World Economic Forum in Davos last week, Alexei Kudrin, Russia’s respected former Finance Minister, stated—or perhaps warned—“We have two years in reserve [to overcome the economic crisis] when social sentiments will be stable. There are still social protests, they are growing, but they aren’t bursting into something out of control”
From the Saudi Point of View
The Saudis and their Gulf Arab allies also have compelling reasons to consider production cuts to balance the global crude market and raise prices. They depend on revenues from crude and crude product exports as much as if not more so than the Russian government to fund government spending. Like the Russian government, they face serious domestic and international challenges—including wars and domestic tensions—that they counted on the export of crude and crude products to fund.
As a result of lost revenues and deteriorating budget numbers, the governments are drawing on foreign currency and sovereign wealth resources, seeking to cut spending, including in such politically sensitive areas as subsidies for individuals and businesses,.
OPEC dynamics are another important consideration. Other OPEC members—Venezuela, Algeria, Nigeria, Angola and Libya—repeatedly have called for output to be cut. In response, the Saudis have argued that OPEC cuts would be ineffective in the absence of simultaneous cuts from non-OPEC countries members
A Narrow Window of Opportunity for Russia for Coordinated Cuts
The Russians potentially enter any discussions with a weaker hand. The Saudis and their Gulf Arab allies probably can withstand lower prices longer than the Russians. Russia lacks the financial resources the Saudis and their Gulf Arab allies have at their disposal.
Their sovereign wealth funds and foreign currency reserves in absolute and per capita terms exceed Russia’s, the value of their government owned energy assets are greater than the value of the Russian government’s energy assets (which are already partially privatized), and Saudi Arabia and its Gulf Arab allies have access to international capital markets, whereas the Russian government, because of U.S. and EU sanctions, does not.
http://oilprice.com/Energy/Energy-General/Russia-Cries-Dyadya-Uncle-Is-Saudi-Arabia-Listening.html