Crying wolf: For OPEC talk is cheap

When will the oil market crumble?

In the past couple weeks OPEC members, led by Venezuela and Saudi Arabia have attempted to talk back up the price of oil. Besides the obvious why are they doing this?

The last time OPEC made such an active roile in trying to talk up prices was at the start of 2016 when oil prices fell below $30 per barrel.

“The price itself is irrational if you ask me,” Khalid al-Falih, the chairman of the Saudi state oil company Aramco and one of the Kingdom’s most influential energy figures, said at the World Economic Forum annual meeting in Davos.

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Oil’s latest bear market – 6 factors to watch

Weaker demand: Concern over an oversupplied crude market has moved on to concerns over an oversupplied product market – particularly gasoline. As refineries have cut back utilisation to protect their margins (in the face of low gasoline prices), refinery demand for crude has fallen.


Reduced ‘risk premium’: One of the main factors supporting prices earlier in the year was the large supply disruptions – at least 1 million b/d and up to 2 million b/d at its peak. The ‘risk premium’ (estimated at $15 per barrel) has gradually been eroded as output has returned. Nevertheless, its worth looking forward to potential future sources of disruption, and hurricanes in the US Gulf could present the next risk to output. In addition the slow train wreck that is OPEC member Venezuela gradually moves towards complete chaos (lower oil prices will only make it worse). Any disruption here would quickly be felt in oil markets. 2016-08-01_2216

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Trumponomics: What would a Trump presidency mean for commodity prices?

With so much uncertainty over Donald Trump’s economic policies it is very difficult to say what the impact on commodity prices will be. In the short-medium term the biggest positive impact is likely to be for precious metals, reflecting the uncertainty and the heightened geopolitical risk. Further ahead a Trump presidency could lead to lower energy prices as his insular agenda leads to support for domestic growth in energy supplies. Meanwhile, labour intensive agricultural supplies (that really excludes corn, wheat etc.) may be hit if anti-immigration policies lead to the loss of workers resulting in higher prices in the US.

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