Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24
RECESSION When Yield Curve Uninverts - 8th Sep 24
Sentiment Speaks: Silver Is Set Up To Shine - 8th Sep 24
Precious Metals Shine in August: Gold and Silver Surge Ahead - 8th Sep 24
Gold’s Demand Comeback - 8th Sep 24
Gold’s Quick Reversal and Copper’s Major Indications - 8th Sep 24
GLOBAL WARMING Housing Market Consequences Right Now - 6th Sep 24
Crude Oil’s Sign for Gold Investors - 6th Sep 24
Stocks Face Uncertainty Following Sell-Off- 6th Sep 24
GOLD WILL CONTINUE TO OUTPERFORM MINING SHARES - 6th Sep 24
AI Stocks Portfolio and Bitcoin September 2024 - 3rd Sep 24
2024 = 1984 - AI Equals Loss of Agency - 30th Aug 24
UBI - Universal Billionaire Income - 30th Aug 24
US COUNTING DOWN TO CRISIS, CATASTROPHE AND COLLAPSE - 30th Aug 24
GBP/USD Uptrend: What’s Next for the Pair? - 30th Aug 24
The Post-2020 History of the 10-2 US Treasury Yield Curve - 30th Aug 24
Stocks Likely to Extend Consolidation: Topping Pattern Forming? - 30th Aug 24
Why Stock-Market Success Is Usually Only Temporary - 30th Aug 24
The Consequences of AI - 24th Aug 24
Can Greedy Politicians Really Stop Price Inflation With a "Price Gouging" Ban? - 24th Aug 24
Why Alien Intelligence Cannot Predict the Future - 23rd Aug 24
Stock Market Surefire Way to Go Broke - 23rd Aug 24
RIP Google Search - 23rd Aug 24
What happened to the Fed’s Gold? - 23rd Aug 24
US Dollar Reserves Have Dropped By 14 Percent Since 2002 - 23rd Aug 24
Will Electric Vehicles Be the Killer App for Silver? - 23rd Aug 24
EUR/USD Update: Strong Uptrend and Key Levels to Watch - 23rd Aug 24
Gold Mid-Tier Mining Stocks Fundamentals - 23rd Aug 24
My GCSE Exam Results Day Shock! 2024 - 23rd Aug 24
Orwell 2024 - AI Equals Loss of Agency - 17th Aug 24
Gold Prices: The calm before a record run - 17th Aug 24
Gold Mining Stocks Fundamentals - 17th Aug 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

key Issues Affecting the London Oil Market Today

Commodities / Crude Oil Jun 10, 2015 - 11:02 AM GMT

By: ...

Commodities

MoneyMorning.com Dr. Kent Moors writes: Greetings from London, where I am hosting a special three-day event for a special group of subscribers. The sessions follow almost a year of preparation and are introducing a major stimulus to profits from investing in worldwide energy.

You will be hearing more about this approach in the future, so stay tuned.

Today, however, we have an immediate development to consider. The London market is again trying to make sense of events in oil. As I have noted here in Oil & Energy Investor on many occasions, the oil trade in London and the Dated Brent benchmark set here daily are more sensitive to global events than the trade in New York (where the other major benchmark, West Texas Intermediate, or WTI, is set).



Despite being a better grade of oil than more than 80% of the crude traded on a daily basis (and slightly inferior in content to WTI), Brent is the international standard. More oil is traded daily using the Brent price as a standard against which the volume is discounted than any other yardstick.

Anomalies in the oil sector tend to hit the London market first. And today there are two issues at play.

OPEC Holds Production Constant

First, last week OPEC again released a statement that it’s holding its production constant. No real surprise here. Yet what the announcement is actually masking has a much more pervasive impact. The Saudi-led cartel has incased its overall monthly production to well over 30 million barrels a day, a figure in excess of global demand levels.

This is continuing to temper what normal demand would do to oil prices at this point. Normally, we would be seeing a more protracted increase in price. Why, then, is OPEC apparently shooting itself in the foot this way?

Because something else is going on inside the cartel, and it is straining the ability of the Saudis to continue controlling OPEC’s actions.

The decision last November to keep production constant, opting to maintain market share in competition with the likes of American shale and Russian exports, rather than cutting the amount released to increase prices, did not sit well with several OPEC members.

While all of the countries have economies dependent upon the sale of oil, Nigeria, Iran, Libya, and Venezuela each have budgetary disasters demanding much higher crude prices. Saudi Arabia, Kuwait, and the United Arab Emirates have hard currency reserves sufficient to withstand lower returns. Therein lies the rising internal tension.

The Saudis Are in a Bind

OPEC maintained the policy in its meeting last Friday. In the interim between the decision at the end of last year and today, on the other hand, those members most reliant on higher prices have been selling well in excess of their monthly cartel quotas in a desperate attempt to gain revenue. That the global price has been increasing nonetheless indicates how much additional pressure is coming to bear from rising aggregate demand.

But it has put the Saudis in a difficult situation. They decided to adopt a policy similar to one they introduced in the mid-1980s. Then, in a far different pricing environment, Riyadh decided to discipline members of OPEC selling volume in excess of quotas by opening up Saudi exports to drown the market and collapse prices. Other members understood the lesson quickly and retreated.

Not so this time. The increase in Saudi production is now meant to mask the increasing production by other OPEC members. A move to protect market share has devolved into a losing attempt to justify counterproductive tactics by others.

This is not sustainable. Every OPEC nation, including Saudi Arabia, has been expending hard currency reserves to support low prices (and, thereby, market share). Saudi Arabia just has a larger coffer than others. In fact, all OPEC nations have been raiding their respective treasuries for some time. And three of the most vulnerable (Iran, Libya, and Venezuela) have already publicly called for a cut in production to increase prices.

Even Saudi Arabia, the best-off of all the OPEC nations, still needs a crude oil price averaging some $80 a barrel to pull even. Others, require prices well above $100 a barrel.

China Lowers Its Crude Imports

The second issue hitting is the latest misread of what’s going on in China. There are reports that Beijing is lowering its imports of crude oil.

Now, some pundits have immediately labeled this an indication of everything from declining Chinese domestic market economic expansion to fears of deflation.

In reality, however, in addition to seasonal adjustments in oil purchases, the decline in imports also reflects large increases that have taken place in early months. Far from any signal that there is something unravelling in China, it is largely much simpler.

China has been stockpiling cheaper crude for most of this quarter (and last) at discount rates. True, we may eventually see a genuine cooling off down the line. But this isn’t it.

As for the price of oil? Both West Texas Intermediate and Dated Brent are up more than 3.2% today as of this writing.

I’ll continue to closely monitor the global events affecting oil and other energy investments… and let you know the best ways to play these to your advantage.

Source :http://oilandenergyinvestor.com/2015/06/these-two-issues-are-affecting-the-london-oil-market-today/

Money Morning/The Money Map Report

©2015 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in