#OPEC decision not cute production: We can interpret the decision by OPEC not to cut production in different ways. With oversupplied market, weak demand, and weak economic forecast in Europe and Asia, so even if OPEC cut production, the uptick in prices will be temporary and market forces will force the prices down again. This is the most mainstream & agreed on interpretation. However, i think if we look on the long term, i think we might very well be looking at a price war that OPEC (and by OPEC, i mean low-cost-producers from the Gulf with large exchange reserves) has opened on more expensive/high-cost-oil producers (shale oil, north sea oil etc) with higher breakeven prices than Gulf countries. If we are entering a price war, the countries with high fiscal breakeven prices such as Algeria (also Venezuela, Iran, Russia) will be hurt the most. Where is the bottom of this market? Will OPEC/Gulf countries/low cost producers push for a lower barrel to 1) squeeze high cost producers out, and 2) make investments in alternative sources of energy cost ineffective? This could be a long term strategy (which only low cost producer with large reserve funds can afford) because with higher prices, alternative energy becomes more attractive source of investment, which isnt the case with lower prices. If this is what we are looking at, well low cost producers are trying to keep oil from losing its market share, but on the long term, not the short one.
Posted on: Sat, 29 Nov 2014 05:11:22 +0000
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