An Oil Freeze? So What?

An Oil Freeze? So What?

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The oil business was abuzz last week with the rumors of a possible agreement between Russia and Saudi on freezing their production at their present levels. Consequently, prices began to creep upwards, especially after both the Saudi and Russian oil ministers made optimistic noises during the recent G20 meeting. They said that a semi-permanent committee would be established to seek ways of cooperation on oil and indicated indirectly that some sort of freeze would be “good”, and “maybe” likely. That was sufficient to trigger oil traders and turn them bullish – for a while at least before they came back to their senses. Continue reading “An Oil Freeze? So What?”

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OPEC not very optimistic for 2017?

DAILY BASKET OF COMMENTARIES

OPEC not very optimistic for 2017?

Summary:
OPEC doesn’t seem overly optimistic on oil prices in 2017. While it sees demand rising slightly, but to a record of 95.41 million barrels per day (MBPD), it is worried that this Summer’s expected demand didn’t materialize and that refineries are overstocked and may not increase their demand for the rest of 2016.

Likely Beneficiaries:
Oil Refineries: theoretically, they can continue to get cheap crude and sell refined products at relatively much higher prices.
General Consumers: They will not see rise in driving cost or utilities costs, at least for some time.
Oil Importing Countries: Such as China, India, Europe and other countries dependent of imported oil.

Likely losers:
Oil Producers: Especially to whom oil export is their bread & Butter. The oil companies in general as well as countries such as Venezuela, Mexico, Nigeria and Iraq would be biggest losers. To a lesser extent, Iran and Russia would be hurt. As for the Gulf oil countries, they are still flush with cash and need a longer period of low oil prices to really feel the pain.

Timing:
Announcing a semi pessimistic forecast would not normally have been expected from OPEC. One would have expected them to try and talk-up the price through bullish forecasts. But, if they really wanted to raise prices, they would have cut back a little on their production, or announced that they intend to do so.

So what is a possible reason for such an announcement?

Around now is the time when the oil hedging for future 2017 prices takes place. Such announcements could have a dampening effect on the hedged prices, which would be negative to such countries, as Mexico, that rely substantially on hedging a big chunk of their annual oil production. Also, it would have a dampening effect on the Shale Oil producers who have used hedging to stay alive during the past two years.

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