How OPEC’s Attempt to Save Face Affects the Oil Market

by | published September 2nd, 2015

Just as I was finishing up Monday’s Oil & Energy Investor, information emerged that something was happening with OPEC. I made mention of it in a note appended at the end of that installment, finishing with the observation that it “Looks like somebody just blinked.”

Well, that somebody is OPEC, and there is much more behind this development, leading to today’s discussion.

In its monthly report released on Monday, OPEC indicated it is now willing to discuss production levels with other non-OPEC countries. This is the first indication that the low crude oil price environment has been creating serious problems inside the cartel.

However, this needs to be put in perspective. A “blink” is not “crying uncle.” And an op-ed piece appearing in the OPEC Bulletin is not a blanket statement of a policy change. But just the same, comments don’t find their way into this publication without the consent of the OPEC Secretariat in Vienna and the dominant Saudi presence within the organization.

The OPEC strategy of keeping production constant to maintain market share, even in the face of a precipitous decline in oil prices, has been unraveling for a while. As I have remarked in Oil & Energy Investor on numerous occasions over the last nine months, the approach has left the cartel seeing budgetary red ink.

Here’s what that means for OPEC’s production strategy… and the oil market as a whole…

What the Oil Price Roller Coaster Means for the Industry

by | published August 31st, 2015

The last two trading sessions have produced some historic rises in crude oil prices. This morning’s decline, however, indicates that the roller coaster ride is hardly over.

Much of that decline can be written off as profit taking. Hardly surprising: In only two trading sessions, the West Texas Intermediate (WTI) benchmark crude rate saw a better than 17% rise, while London’s Dated Brent benchmark rose 15.7%.  

Some pundits are further suggesting this morning that concerns over whether the Fed will raise rates in September are also contributing. Now, a quarter of a point rise (and then some) has already been worked into the bond market. But any Fed rate rise will have an impact on high-yield energy debt, as we shall see in a moment.

However, it is the spike in the price at the end of last week that had everybody talking. This does not mean we are on our way to $80 a barrel oil anytime soon. But it does mean that a floor may be forming.

Here’s what this trend will mean for struggling U.S. oil producers… and for OPEC…