One of the more interesting stories that seems to have flown beneath the radar of the foreign exchange market this week was that the US government has quietly asked Saudi Arabia and some other OPEC producers to increase oil production by around 1 mn barrels per day, according to Simon Derrick Chief currency strategist of BNY Mellon.
For any investor who believes that $70/barrel is more or less the right price, then the European oil firms are currently fairly priced. Alphavalue recently upped their earnings forecasts to include $70/barrel as a new normality. This leaves the sector with an upside potential of +6% on a 6-month horizon.
The price-inventory apparent mismatch of crude oil matters to the extent that going long crude appears to be a crowded trade so that the risks are on the downside if it were to happen that the “confirmed” cuts have been more paper ones than real ones.
Julius Baer Research | Non-OPEC producers under the lead of Russia will join OPEC’s supply cuts, which was necessary for the deal to become effective. With the paperwork done, oil producers must now walk the talk. There are many buts and ifs and we remain sceptical if compliance with the quotas is sufficient to materially shift the oil market’s balance
OPEC’s first cut in production in eight years is not good news for the Spanish economy. Spain imports almost all the oil it consumes and has benefited enormously from the slump in the price of a barrel of this “black gold”. It’s estimated that every 10% drop in the price of oil allows for one-tenth of a percentage point improvement in Spanish GDP (1 billion euros). And the reverse is true when the price increases.
OPEC has finally agreed to cut production by nearly 1.2 million bpd from January and for 6 months, representing about 4.5% of global output. Now we need to ask two questions: will the cartel countries respect the agreement? What will happen with the recent investment deficit in the sector? Will it still be profitable for the big producers to extract oil?
UBS | It looks increasingly likely that at its meeting on 30 Nov next week OPEC will agree the production cut envisaged at its Sept extraordinary meeting. In Sept an OPEC-14 produc tion target range between 32.5 -33.0Mbd was agreed, designed to accelerate inventory draw -down and bring fwd re-balancing.
Oil demand in both Emerging Markets (EMs) and Developed Markets (DMs) has risen strongly since 2014, but now the oil market will have to rely on EM consumption, according to a BofA Merrill Lynch Global Research report.
Julius Baer Research| As speculation swirls ahead of next month’s informal oil producer meeting, it feels like ground hog day in the oil market. With prices diving into the lower 40s per barrel, talks about supply cuts from oil cartel’s members, OPEC, have resurfaced. We see the chances of any action as exceptionally slim.
The IEA estimates that the drop in production in non-OPEC countries, mainly the US, coupled with the positive trend in demand, could foreseeably shut off the excess of supply in the second hald of 2016, returning stability to the oil market.