Crude Oil Spikes In Speculative Reaction To OPEC Statement

Crude Oil Spikes In Speculative Reaction To OPEC Statement

$OIL, $USO

Crude Oil prices spiked Monday to mark a high near 49 bbl on WTI for Oct delivery. The immediate cause, the OPEC Bulletin for August, released Monday by the Organization of the Petroleum Exporting Countries.

Below are some selected highlights from the statement, as follows:

“Apart from the obvious loss of much-needed revenue required for Member Countries’ socio-economic development, there are growing fears that, under the current low-price scenario, investment in future capacity additions will continue to be shelved or cancelled altogether.

Failure to invest now could mean prices in the coming years spiking to levels inconsistent with what is considered ‘reasonable’ for both producers and consumers.

The one good thing to come out of a period of lower prices is that demand customarily rises as cheaper fuel encourages more usage by the consumers. And the current situation appears to be no exception.

… [B]etter-than-expected growth in global oil demand so far in 2015, together with signs of a pick-up in the economies of the major consuming countries, [indicates] crude oil demand in the coming months should continue to improve.”

Following the history lesson and a declaration that the low-price regime the cartel brought down on Crude Oil producers everywhere has succeeded in boosting price, I understand the payoff.

OPEC always does all in its power to create the right enabling environment for the Crude Oil market to achieve equilibrium with fair and reasonable prices, as OPEC will protect its own interests. Its Members’ economies rely heavily on the precious resource, so can cannot afford to do otherwise.

Crude Oil traders appear to be reading this as a pledge to rein in production, or to avoid production getting any higher. I do not believe it.

Low Crude Oil prices are hammering Venezuela, Nigeria and other OPEC members, but it is inconceivable that the Saudis, who drove the move to maintain share at any price, are going to make any substantial change this situation.

What is looks like is that OPEC’s leadership agreed to take to center stage on behalf of those members hit the hardest, knowing that any indication that the cartel was ready to resuscitate pricing by lowering production would give Crude a near term boost.

The effect is likely to be short-lived.

Monday  OPEC production rose by 150,000 BPD in August to 32.3-M BPD, well above the cartel’s agreed quota of 30-M BPD and there is more coming to market. The fundamentals have not changed.

Stay tuned…

HeffX-LTN

Paul Ebeling

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