Tag: Robert Boslego

OPEC Lost Hedge Fund Long Oil Traders' Support

Posted on by Robert Boslego

Robert Boslego - INO.com Contributor - Energies


Mohammed Sanusi Barkindo

The drop in crude oil prices in the international market after the decision by OPEC to extend its production cut through March 2018 is not a major concern for now, the Secretary General of the group, Mohammed Sanusi Barkindo said. He's not worried about lower prices.

He explained that OPEC is only concerned with the fundamentals of supply, demand and inventories. He is not concerned about other market conditions. Presumably, he means the sentiment of oil traders. Continue reading "OPEC Lost Hedge Fund Long Oil Traders' Support" →

OPEC Caught a Tiger By The Tail

Posted on by Robert Boslego

Robert Boslego - INO.com Contributor - Energies


Oil prices peaked in this latest cycle at about $107/b in June 2014. Prices had dropped below $80/b by the OPEC meeting in November 2014, and OPEC had had enough of America's shale oil taking away their market share and declared a market share battle.

Prices dropped for more than a year before bottoming January 2015, and retesting that bottom again February. On Friday, February 12th, the March crude futures contract spiked 12.2% based on speculation of a possible OPEC agreement to cut oil production. Even though the four oil producers announced that they had tentatively agreed to "freeze" their production, the subsequent price increases have added a total of about $4 per barrel to the OPEC Basket Price.

Although OPEC has not cut one barrel of production, the market has altered its distribution of potential future oil prices, raising its probability-weighted expected value. The fact that OPEC and Russian producers are talking and have agreed to something has led the market to think there could be movement toward shoring up prices from their disastrously low levels.

OPEC seems to be learning this lesson. Venezuela oil minister Eulogio Del Pino Tweeted on Tuesday that "an expanded meeting of OPEC and non-OPEC producing countries that support production freeze will be held in mid-March." Such an announcement may ensure the price gains hold.

I had written on February 29th, 2016, ("OPEC Freeze Talk Is A Free Lunch"): Continue reading "OPEC Caught a Tiger By The Tail" →

Oil Market Outlook Deteriorating for OPEC

Posted on by Robert Boslego

Robert Boslego - INO.com Contributor - Energies


Arrogant OPEC members thought they could beat American shale oil producers into submission in a market share battle. But instead, they caught a tiger by the tail, and now the tiger is turning on them.

OPEC producers were bragging back in late 2014 that they had much lower costs of production than American shale oil producers and could easily win back market share by undercutting their prices. But they failed to take into account that they needed higher prices than shale oil producers because oil revenues largely support their national budgets.

Low oil prices caused huge national budget deficits in OPEC countries. They did hurt the smaller, leveraged shale producers; however, they were able to take advantage of the bankruptcy laws in the U.S., not a real option for the producing countries. Their best response is to devalue their currencies, but there are a host of economic issues associated with exercising that option.

Fresh data were reported by OPEC and the U.S. Energy Department recently. The data imply that global oil stocks will rise, instead of decline in 2017, even with the OPEC-non-OPEC production cutbacks. Continue reading "Oil Market Outlook Deteriorating for OPEC" →

Why OPEC's Cut-Extension Is Another Blunder

Posted on by Robert Boslego

Robert Boslego - INO.com Contributor - Energies


OPEC, led by Saudi Arabia, blundered when it decided to engage in a battle for market share in November 2014. It assumed it could drive American shale oil companies bankrupt and then pick up their market share.

But this strategy was destined to fail. For one thing, they didn’t take into account that American shale oil companies had hedged their future production. That protected the companies from experiencing the impact of lower prices to the extent that they had hedged.

Second, they didn’t take into account the American bankruptcy system. Companies can continue as “zombies” surviving by cutting costs to the bone, and selling assets to other companies at a discount to keep afloat. The buyers then have a lower “cost basis.”

Third, they didn’t take into account their own vulnerabilities. Sure, their national oil companies have low production costs but their oil revenues largely support the national budgets. They need high oil prices to balance their budgets, effectively making them high-cost producers (e.g., KSA about $65/b in 2017). Continue reading "Why OPEC's Cut-Extension Is Another Blunder" →

Crude Oil Seasonality, Inventory Rebalancing and Production Cuts

Posted on by Robert Boslego

Robert Boslego - INO.com Contributor - Energies


The historical stock build from December 2014 through July 2016, and subsequent decline from August through December has led some to conclude that global stocks had started to rebalance. Instead, the normal seasonality in stocks had been masked by the high overproduction of OPEC, but then normal seasonality kicked-in.

Global OECD inventories from past years demonstrate the normal seasonal patterns, with some variability. As shown in the graph below, stocks normal build early in the year and peak around August. Stocks normally drop from September through December.

OECD Oil Inventories 2010-14

But in 2015, the oversupply was so excessive that stock just kept building through the year. They finally peaked in July 2016, then dropped off due to normal seasonal demand. This normal pattern led to a false conclusion that the rebalancing of stocks had begun. Continue reading "Crude Oil Seasonality, Inventory Rebalancing and Production Cuts" →