Thursday, 3 December 2015

Is Saudi finally ready to cut production?

A day before OPEC's summit meeting is to be held in Vienna, Austria rumours have been flying around that Saudi Arabia, the leader of the collusive oil body, whose goal is to control global oil supply, may be looking to propose production cuts in the wake of one of the biggest oil gluts the world has seen in a few years.

However it is further rumoured that there will be a number of conditions attached to these cuts that would also need the cooperation of other non-Opec member nations such as Russia. The plan is to hold off this year with the eventual cuts taking place next year but no date has been given.

If I think about the the economic degradation member nations of OPEC have been subjected to at the decision of the Saudis, it would be naive to think this price war has done no damage to those economies let alone the relationship between these members. There have been a number of calls from higher cost producers such as Nigeria and Venezuela to bring forward the summit but to no avail which does leave the Saudis in a precarious position to explain itself and its actions.

These reports not only fuel anger towards Saudi for dragging its feet but also call into question the stability of the alliance who I believe may go all out and retaliate and cut more production than necessary to see a significant surge in the price of oil. Consider Nigeria who is currently experiencing a reserve shortage that stops foreign companies from repatriating their profits back home as a result of loss of revenue from oil due to a lower price.

US shale gas producers have closed a staggering number of wells this year surprisingly, down dramatically from a year ago when new wells were spurting up at a blazing pace but I still think there is more story to the tale as we haven't seen the bigger players beginning to suffer the same consequences as the smaller ones.  

I think there remains an expectation that a debt crisis will appear in the shale gas sector with eager journalists ready to pounce at the exact moment one ailing company actually files for bankruptcy, we do see some trying to push momentum in public interest but so far nothing has stuck as much as we know.

I remain steadfast in my belief that there needs to be an event of extreme impact on the quantities of oil coming to the surface to feel confident that we've seen a bottom put in and I'll say it as I have in other blog posts, I'll be watching the story closely.
I must admit I was a skeptic when an offer was made by AB Inbev to acquire SABMiller in a deal that would see a global beer giant formed accounting for 1 in every 3 beers sold and I must emphasis that I remain a skeptic as we start seeing news flow into the nitty gritty details begin to emerge surrounding the proposed sell off of a number of beer brands to lower the hurdle for regulatory authorities.

In one instance, a small brewer in the UK, Meantime Brewer Co which was purchased by SABMiller only just months ago will be one of the casualties to get the boot making you wonder if the deal was well thought through in the first place or was it merely an egotistical competition between the two largest brewers in the world.

An example such as above does exhibit differences in management strategies which would be very difficult to find synergies if AB Inbev were to take over the reins as most of the foundations being laid by SABMiller management being thrown into the wind. We cannot discount the chances of a deal going through but the more new information comes to light the more and more doomed the deal will eventually become.

    AB InBev to Explore Sale of SABMiller's European Premium Brands https://t.co/Nho10xXTtS
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