The whole world’s eyes are on the Shivering Sunday when at least 15 OPEC and Non- OPEC members will sit together for the first time in 15 years and play the never ending saga of ‘Balanced Output’. Not that I am not a fan of OPEC meetings and their rolled over talks but it’s still April and we can be fooled. While the world is witnessing a civil war onscreen between Iron Man and Captain America on one hand and a possible third world war off screen if Donald Trump keeps leading in the US Presidential race, I think waiting for Doha meeting outcome will be the safest thing to do.
Today Saudi Arabia and Russia, two of the world’s largest oil exporters along with 13 other members will meet and discuss about freezing the output of crude oil at current levels or may be cutting the production to stop the oversupply which now has become more threatening to mankind than Justin Bieber ever was.
Iran’s Oil minister Bijan Zanganeh has already RSVP’d a big NO but just for sheer entertainment purpose, Iran will send a representative to define their plan of action (disagreement to almost everything OPEC says.) to the rest of the members. Libya, on the other side is as usual playing civil war 2 so is deemed to be busy.
Just to brief my readers who visit the website as a result of unwanted cookies and the regular visitors who check the website, spend 2 minutes only to realise it was a waste, that Crude Oil price plummeted almost 70 percent since 2014 due to supply glut and slowdown in the world’s second largest economy with the smallest eyes, China.
Around 60 North American oil gas companies have stepped into bankruptcy and revenues in countries like Venezuela, Nigeria and Ecuador have nosedived. Since then, there have been meetings and conferences to increase the oil price by matching the demand and supply curve but it never succeeds. I guess Donald Trump was taken more seriously than this.
In February 2016, IMF and US Federal reserve irritated Saudi so much that they proposed the idea of freezing the output to January levels which made Iran go all WHAT THE …!!!, since their sanction bells were just lifted. So, they denied Saudi’s friend request and updated their status as “Taking Output to the Pre-Sanction levels”
Hence the persisting scepticism over the conference to be held in the Qatari capital today. As markets open on Monday, analysts and traders predict a mass sell off in Crude Oil. Though after the Feb proposal, Crude Oil price has shot up by 50 percent from the low of $26.50 pushing the equities higher. Let us find out the possible outcome of the Doha Conference.
Possible Outcome (Tip…Tip…Tip…Tip)
Rollover the Chit Chat, chitty chatty, chitty chatty chat– It is possible that all the members in the conference do not reach to any conclusion and keep the chit chat going until the next meeting while crude oil slumps. This explains why UK and US Crude Oil slipped below 3% on Friday. The equities also went skinny dipping prior to the meeting to be held on Sunday. This means the negativity has hit rock bottom and hence, the profit booking.
Give it a break- The best but highly unlikely scenario is that the members achieve consensus to freeze the output and be generous enough to remain flexible in regards to adopt new measures relating to reducing output. I believe it is a little extreme to ask for, given the fact, US Shale’s production has dropped due to higher costs and if oil price goes up then Shale will be back in full force.
Long-Term Price Trend for sCRU-DE Oil
Surprisingly, the trend for crude oil price may not be clear but as per the economic data, the oil price might show a rally in the longer period.
- Drop in Oil Rigs– Last Week Baker Hughes reported a decline in the oil rigs for the fourth consecutive time. Now, no matter how much the output is frozen, the oil rigs are frozen for sure as hell.
- Weaker dollar– The dollar index dropped as low as 93.50 in last few weeks. The greenback has shown weakness against yen and euro too. The weaker dollar has provided a support to the falling oil price.
- Return of the Dragon Warrior– As per the last data, the Chinese economy grew at the rate of 6.7% which shows that it might be at the bottom of the slowdown and the dragon may rise to spit fire again.
- Demand kissing Supply– According to recent data from The International Energy Agency, the global supply till March 2016 stood at 96.5 million barrels per day while the global demand at 94.66 million barrels per day. This means that consumption level will slowly make love to supply level, eventually increasing the demand, leading to stability in oil price.
Short-Term Price Trend for sCRU-DE Oil
The difference between the long-term and the short-term price trends is upside down, literally. Yes, it heading south due to:
- Winter is going– The summer is going to sizzle which means it will be time to switch to summer gasoline leading to a decline in the short-term demand for crude oil.
- Chinese DAMPLING– The dampening growth in China is still an issue. It may have given symptoms of bottoming out but it would take some time for the world’s second largest economy to come back to its usual pace.
- Mad Max Fear– This indicates fear in the market and the failed attempts to stabilize the oil prices leads to negativity among the investors. The continuous lower forecasts by rating agencies and sometimes my father, makes investors anxious that oil might hit $20/barrel once again.
Comments from the Joker
The Doha Conference may sound as an important event, but will the ark in Doha be able to save the falling oil prices and the economies? I believe, the investors have raised their hope which had strengthened crude oil price over the last few weeks. But if this ship in Doha does not save the oil prices then the effect could be worse.
There could be a decline of 10 to 12% in the oil prices and dollar may get stronger. The equities might head south too. The impact however, will be temporary but would stabilize oil, I reckon.
This conference is over hyped and therefore its impact will also be very limited. I believe it would not reach any conclusion, members would avoid any commitments resulting to poor outcome. The worst case scenario will be that everyone shows up except Saudi, which means peeing in the wind.
But jokes apart, the biggest issue is still the trust among the Opec and Non-Opec members. How would the members reach to any binding agreement if there is no trust? If they decide to freeze the output, would it be accepted by all the members? And what will be the average output and where the cap should be put?
The questions will be answered on Sunday so keep shivering and keep reading for the hottest updates from the world of financial markets.
Will Doha’s Ark save the sCRU-DE Oil???
Will OPEC reach to any agreement EVER???
Who will win the civil war between Iron Man and the Captain America???
Wait!!! Don’t answer that.
To answer rest of the mysteries, keep reading the Trade Joker.
Sources and References: Reuters, CNBC, Gulf News, Business insider, abc news, usa news, the wallstreet journal
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