OPEC oil price deal looks busted
While most of OPEC appears to be sticking to the deal to cut production, two countries are adding pressure. Libya and Nigeria are, by agreement in OPEC, exempted from the cuts. They’ve responded by increasing production pushing prices lower.
The OPEC deal was well received because it was broadly accepted. The cuts involved weren’t all that deep, however. That means that the members will rely on demand increases to drive prices higher. So far that has simply not occurred.
Khalid Al Falih, Minister for Energy in Saudi Arabia, says that the market just needs time to adjust to the new regime. In his view, “Market fundamentals are going in the right direction but, in light of the large surplus in stockpiles over the past years, the cut needs time to take effect.”
Saudi Arabia, arguably the world’s most important oil pumper, reckons the new lows are being set by old stockpiles. It seems hard to convince Wall Street of that, however.
The moves among OPEC members are causing even more worry for already burdened traders of the VelocityShares 3x Long Crude Oil ETNs linked to the S&P GSCI Crude Oil Index ER .
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The OPEC deal will continue to be a point of contention in the coming months. On top of that is the rise in crude production back in the United States. Falling crude oil prices have resulted in higher production in North America this year.
That means that either costs of production are falling, or producers are betting on future rises. If it’s the latter Saudi Arabia, and other oil-supported states, should be nervous. If it’s the latter then those producers are likely to end up out of business.
For traders of the VelocityShares 3x Long Crude Oil ETNs linked to the S&P GSCI Crude Oil Index ER it’s almost impossible to know which effect dominates. That makes it one of the most dangerous bets on Wall Street.
