Saturday , March 6 2021

That is why the OPEC production cuts would be premature



Since brent crude threatened to move below $ 70 a barrel, it seems that the stories about potential reductions in OPEC oil production were on the surface. Saudi Arabia said at week-end that it plans to cut its supply by 500,000 barrels a day in December, as it is afraid of stockpiling expectations of uncertain demand.

Said Arab Minister of Energy Khalid Al-Falih told reporters that Saudi Arramko's rumored nominations would fall for the lowest seasonal demand, but then they increased production by 1 million barrels per day, which is why it only recovered a higher base. The group plans to cut up to 1 million barrels a day, because it is worried that prices could fall much more.

This would be a rather premature step, especially given that it is still not fully aware of the impact of Iran's sanctions. Just about a month ago, the world was talking about "low unused capacity," where the idea of ​​cuts seemed absurd. How prices change after four weeks when prices dropped.

Since the beginning of October, when Brent traded at $ 85 per barrel, hedge funds have sold half a billion barrels of crude oil and refined products equivalent over the last six weeks. This is the highest decline in any six-week period since at least 2013. The funds are currently 4: 1 long or short positions, compared with more than 12 to 1 at the end of September.

The oil market moves with a slight delay. Demand parties shrank in the summer, as emerging economies collapsed, but it was not easy to see the weather in a short time, because we were the main driver of the summer driving season, where demand for gasoline is higher. Those who ask for fear are now playing.

Looking at all asset classes and commodity indicators over the last three months, it is not surprising that the oil has finally normalized in the current economic cycle. However, the supply side has returned with revenge, as happens when prices change; it only takes time for it to actually enter the market. Judging by the apparent views of equipment at the beginning of this year, production is being observed now that US slate producers have increased production by more than 2 million barrels a day during the 12 months to August. This is a Garden Law case when we are in a weak season before the fourth quarter demand.

The market is also considering launching OPEC. We know that OPEC is really only Saudi Arabia, and Russia, by managing the committee, is reducing production and increasing, as they see fit, focusing on maintaining prices in the global economy and on their own. After all, they do not want to kill the goose, which gives them golden eggs. This would have serious consequences for the oil market, not to mention oil dollars and the dominant position of the dollar, which returned to the 1970 Bretton Woods system.

Regardless of whether this institution has been completely terminated (I believe that the chances are very small), however, the production of oil and the physical basis remain unchanged. The region has to worry too much about oil dollars, especially when China is about to move forward with the aim of moving petroyuan towards the One Belt One Road initiative and planning Eurasian trade.

The oil market is not a human being; now it's going to be shorts. It's not cheap yet. Assets class and securities with a 40% discount on their net asset value; why try to get the price of oil today? To see genuine support, we need to see how the demand for winter heating oil begins. But stocks are much more convenient than last year.

If there is a wider Chinese and global rally, commodities such as copper, iron ore, steel and their respective shares will be more oil than the discounts are more obvious. In order for this to happen, we need a resolution to reach the G-20 Summit or an agreement between China and the United States. By then, base metal goods will change slightly with their fate linked to juvenile and US dollar.

Get an email alert every time I write an article about Real Money. Click "+ Follow" next to my article on this article.


Source link