Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
CoronaVirus Pandemic Day 76 Trend Forecast Update - Infected 540k, Minus China 1715, Deaths 4920 - 23rd Feb 20 -
Ways to Find Startup Capital - 23rd Feb 20
Stock Market Deviation from Overall Outlook for 2020 - 22nd Feb 20
The Shanghai Composite and Coronavirus: A Revealing Perspective - 22nd Feb 20
Baltic Dry, Copper, Oil, Tech and China Continue Call for Stock Market Crash Soon - 22nd Feb 20
Gold Warning – This is Not a Buying Opportunity - 22nd Feb 20
Is The Technology Sector FANG Stocks Setting Up For A Market Crash? - 22nd Feb 20
Coronavirus China Infection Statistics Analysis, Probability Forecasts 1/2 Million Infected - 21st Feb 20
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Here’s What Happens When Crude Oil Geo-Policy and Market Reality Collide

Commodities / Crude Oil Aug 26, 2015 - 10:30 AM GMT

By: ...

Commodities

MoneyMorning.com Dr. Kent Moors writes: Over 220 years ago, a Scottish writer by the name of Thomas Carlyle provided a personal account of what Paris was like during the French Revolution. The three-volume work (which at one point I suggested in an academic article was two volumes longer than necessary) is full of personal anecdotes. One of them is particularly relevant these days.


On a hot afternoon, Carlyle was sitting in a coffeehouse with a supposed high fellow of the revolution. Suddenly a shouting crowd with raised pitchforks rushed by. The revolutionary jumped to his feet, apologized to Carlyle, and said: “Those are my people. I am their leader. I must follow them.”

Cut to yesterday.

The last two trading sessions have prompted a frantic rush among investors to find whatever safe haven from a global market implosion may be available. Yet, in my circles, there is an even more interesting development afoot, one that brings back Carlyle’s 1790 conversation.

Here’s what’s really going on in the oil markets right now… 

OPEC’s Backfiring Plan

What had begun as a calculated move by OPEC producers to protect market share has morphed into a crushing decline in crude oil prices. The downward spiral in the oil market now has a life of its own. And in the process, its creators are panting to catch up.

Like a snowball racing down the mountain, those who set it in motion no longer control where it is heading.

Beginning last November (on Thanksgiving, no less) OPEC started the policy assault by deciding to keep production constant. By doing so, it telegraphed an intention to protect its international market share rather than the price.

What followed was the first of two significant pricing slides.

In the process, it became clear that not all cartel members were in the same boat. While all members were experiencing shortfalls in revenue – requiring deficit financing for central budgets – only Saudi Arabia, Kuwait, and the United Arab Emirates (UAE) could afford to carry the policy along without serious financial problems.

Other OPEC members, such as Venezuela, Libya, Algeria, Nigeria, Iran, and even Ecuador (the smallest producer and exporter in the group), require triple-digit crude prices to have any hope of balancing already suspect budgetary outlooks.

The Saudis Target Russia and the U.S.

That translated into a rising desperation among the also-rans to produce and export well above their monthly quotas. The receipt shortage was demanding that they sell additional amounts of oil into an already oversupplied market. That drove prices down further.

No longer able to control the situation, the Saudis decided to continue appearances as the “leader” of OPEC and increase their own production and sales. That way, the overproduction could be portrayed as a cartel-wide decision. Of course, prices went down in consequence.

There were two targets for these machinations. The first is the Russians. Moscow has a completed ESPO (Eastern Siberia-Pacific Ocean) pipeline with a crude oil grade better than Saudi exports destined for the Asian market.

The Saudis needed to offset that competition in what is becoming the principal worldwide energy market. By cutting prices significantly, Riyadh is requiring that Moscow move oil to Asia at a loss. Recent strong statements from state giant Gazprom that the trade will continue despite Saudi moves are actually a recognition that the OPEC policy is working in limiting Russian exports to the energy-thirsty region.

The second target is the one getting all the media attention. U.S. shale and tight oil production had been accelerating, with the traditional “call on OPEC” being replaced by the “call on shale” in setting prices.

Now the American impact remains indirect, since the vast bulk of domestic production cannot legally be exported. Yet OPEC knows that more than 80% of the world’s extractable shale and tight oil is not located in North America.

That means the contest with the American oil patch is the “test case” for a problem they will be increasingly facing as other countries turn to developing local unconventional volume.

The Chinese Stock Market Implosion Changes the Game

And then the other shoe fell. Two of them, actually, and both Chinese.

First, Beijing began importing more African oil, especially from other OPEC members Angola and Nigeria. The prospect has required Saudi Arabia to lower its own export prices and to enter into an intra-OPEC competition.

Left in the wake as well is Iran, which has relied on China as its primary trading partner throughout the period of Western sanctions.

Normally, lowering prices to one region would result in raising export prices to others, especially in this already reduced pricing environment. But then the second shoe fell.

The Chinese stock market implosion hit. Not only has this introduced concerns (largely overblown, in my estimation) of an impending major decline in Chinese energy needs. The market collapses in Shanghai and Sichuan have ushered in a global market meltdown.

This dual whammy from the Orient has slashed crude oil prices well below where OPEC wanted them. The policy they had introduced to maintain their market share in the face of competitors is now under the direction of forces beyond their control.

As I write this, it is 1 a.m. U.S. Eastern Time. Shanghai is down another 4%. OPEC will need to reassess its strategy shortly.

Carlyle must be smiling in his grave. Déjà vu is like that.

Source http://oilandenergyinvestor.com/2015/08/heres-what-happens-when-oil-geo-policy-and-market-reality-collide-2/

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.


© 2005-2019 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

6 Critical Money Making Rules