Friday 11 September 2015

Top Tweets Today: 11/09/2015

Following from yesterday's post , Goldman Sachs came out and told the market should the oil glut continue to flood the market they forecast the price to go as low as $20 per barrel. This sent shivers down the spine of oil shale producers who are up to their eyeballs in debt.

The questions turns to how long can each hold out , referring to US shale producers and OPEC. On the one hand you have a newly formed industry loaded with fresh capital from expectant shareholders wanting their piece of the pie and the other hinging the monopolistic power of oil supply on the back of fragile, political instable nations relying heavily on oil revenues to turn their economies.

It also looks like Saudi Arabia, the leader of the collusive economic agreement, is desperately dancing around pleas from troubled nations to bring forward the annual meeting by members due to be held in December. If continued pleas go unanswered it could possibly force desperate members to cut productions against the wishes of the OPEC.
Although at $20 per barrel would certainly make consumers happier, keep inflation in check it and keep rates lower for longer which many on Wall Street would be only to happy to accept the likelihood of it  playing out is not very likely. US producers are already starting to react which is indicative from the drop in crude oil production.

We also need to bear in mind that this could be the most pessimistic view held by analyst. This tweet from StockTwits shows why a degree of skepticism is needed when considering the arguments. These were the same analysts who morbidly painted $200 as the next mark for oil was flirting at levels way above $100 per barrel. That bubble popped without ever reaching that mark with not much said after that...
Here's a comment from Twitter I managed to pick up. If one thinks about the price decline in terms of percentage that would be roughly 50%. Considering the price has dropped off more than 50% already in the last year what is the possibilities of it happening again?
To add further insult to injury it was speculated that Russia may join forces with OPEC to drive up prices should the collusive body find it necessary. However in this report by Bloomberg it's stated that although Russia is hurting from lower prices their costs of production come in much lower than most OPEC nations.

Russia would also not want to give away its control over its oil field to OPEC who dictates the quantities each member needs to bring to market in order to starve or in this case flood the price of oil. Russia would need a decision making role in the body which I don't see OPEC conceding to that so it's safe to say that Russia will adjust their production to the economy's needs rather than the world's.
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