CCoou­ulldd ooi­ill ttoo $$2200?? sst­ti­il­lll ddr­roopp

Financial Mirror (Cyprus) - - FRONT PAGE -

Last week, an­a­lysts at Cit­i­group slashed their fore­cast for crude oil to $20 a bar­rel be­fore prices begin to re­cover based on two points: the amount of crude oil in stor­age and the end of OPEC’s role as the so-called swing sup­plier.

West Texas In­ter­me­di­ate (WTI) crude oil for March de­liv­ery closed at $44 a bar­rel on Jan­uary 29 and at $52.65 this past Fri­day, about where it traded be­fore Citi’s fore­cast was pub­lished. Crude dipped to $49 last Wed­nes­day be­fore climb­ing back up on Thurs­day and Fri­day.

U.S. crude in stor­age re­mains at an 80-year high, and there have been re­ports that for­eign pro­duc­ers have been leas­ing tankers to sail around in cir­cles with car­goes of crude wait­ing for the price to rise.

In the U.S., shale drillers have been cut­ting back on rigs at a pace of more than 80 a week for the past sev­eral weeks. But the cuts to rigs are not be­ing ac­com­pa­nied by cuts in pro­duc­tion.

OPEC’s in­flu­ence on oil mar­kets has been di­min­ish­ing since the mid-1980s, and the so-far im­puted abil­ity of U.S. shale pro­duc­ers to re­place the car­tel as the world’s swing pro­ducer may soon be tested. The im­por­tant point here is that oil car­tel - and in par­tic­u­lar Saudi Ara­bia, Kuwait and the UAE - have de­clined to fill their tra­di­tional role of bal­anc­ing the oil mar­ket by turn­ing the spigot on and off. Un­til de­mand can sop up the ex­tra­or­di­nary sup­ply, prices should re­main low but are un­likely to fall to $20 a bar­rel. There is a caveat, though: should pro­duc­ers be un­able to find swaps deal­ers will­ing to hedge fu­ture pro­duc­tion, prices could go much lower than they are to­day.

Mar­ket par­tic­i­pants are more op­ti­mistic about fu­tures prices than swaps deal­ers, but as long as shorts vastly out­num­ber longs among the swaps deal­ers, pro­duc­ers will have dif­fi­culty hedg­ing fu­ture pro­duc­tion. Rig counts will con­tinue to fall and pro­duc­tion even­tu­ally will fall with the rig counts. What is un­likely, though, is that an­other $30 a bar­rel will be lopped off the price of crude.

Newspapers in English

Newspapers from Cyprus

© PressReader. All rights reserved.