Opec cuts won't work

16 May, 2017

The oil price racked up its fourth straight day of gains today after Saudi Arabia and Russia said a deal to cut production should continue until March next year.

After reaching a low of $46.50 just over a week ago, Brent crude oil has jumped more than 13 percent and is now trading around $51.80.

In a joint statement today from China , ministers from Saudi Arabia and Russia agreed to further oil production cuts until next year, which sent the oil price significantly higher but some say the move won’t be enough to support the oil price for a sustained period and more needs to be done,

"Opec and Russia recognize that in order to get the market back on their side they will need 'shock and awe' tactics where they need to go above and beyond a simple extension of the deal. The market will also be looking at export cuts and not just production cuts, which is what is required to rebalance the market."noted Virendra Chauhan, an analyst at Energy Aspects.

As in Previous deals, The US has refused to join any production cuts with OPEC and Non OPEC members and in fact increased production to take advantage of the higher prices.

The number of oil rigs in the US is now expected to increase which may be a barrier to any significant gains.

There are also problems of loyalty with some of the OPEC members, who on the surface agree to cut production, but in reality keep the oil pumping,

“This is not going to cut the mustard, because the biggest problem will most likely emerge within the cartel. Libya and Nigeria are ramping up production massively. This is going to have an impact on the overall number for OPEC oil production. Noted Naeem Aslam, chief market analyst at ThinkMarkets

“Best case scenario, I see the markets celebrating in the short-term the fact that extending the production cut could lessen the supply glut, but I expect reality to rear its ugly head sooner rather than later. It would be then that we could see the price dropping once again” he added.

Mr Aslam also noted that during this volatile period, there could be some good trading opportunities to be had if as predicted, the oil price moves between $40 and $50,

“The ideal scenario could be to look for an entry when the price is trading in the low $40s and look to take profit when it is in mid $50s.” he said


Source  
Gold looking towards $180022 Jun, 2020  

The gold price is pushing higher once again in today's trading session, following on from last Friday's gains as some in the market raise fears about the recovery...

U.S. riots: curfews and troops imposed in 40 US cities3 Jun, 2020  

US authorities impose curfews in major cities due to riots that began with protests against the killing of an African American by police in Minneapolis...

American chaos and weak PMI1 Jun, 2020  

Riots intensify in the US. Clashes between protesters and police continued in the country's largest cities from New York to Los Angeles, forcing Amazon.com Inc. restrict...


Economic calendar for the week 1 Jun, 2020  

Slowly but surely, business activity indicators in the world are growing. #Covid19 pandemic has long reached a plateau and is in decline. The OPEC+ ministers...

Brexit: deadlock again28 May, 2020  

Recently the media reported that British Prime Minister Boris Johnson is planning to fly to Brussels in the second half of June. However, there are no special...

Swiss Bank sells off CHF28 May, 2020  

Yesterday, the head of the Swiss National Bank (SNB), Thomas Jordan, spoke about the state of the monetary policy in Switzerland - the main message is that now...


EU unveils 750 bln euro plan for coronavirus recovery28 May, 2020  

On Wednesday the European Commission announced an anti-crisis plan, under which it will pay the EU countries 750 billion euro, instead of 500 billion...

EU Antivirus Fund26 May, 2020  

The path to the euro's recovery is likely to be bumpy. Four European Union countries already nicknamed the "mean four" in the media are to blame. They categorically...

New sanctions and rising oil prices25 May, 2020  

Tensions between the US and China are growing. On Friday, the US Department of Commerce announced the blacklisting of 33 Chinese companies and...