Best of the Week
Most Popular
1. Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - Nadeem_Walayat
2.Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - James Burgess
3.Gold Price Trend Analysis - - Nadeem_Walayatt
4.The Beginning of the End of the Dollar - Richard_Mills
5.Stock Market Trend Forecast Update - - Nadeem_Walayat
6.Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - Troy_Bombardia
7.Precious Metals Sector: It’s 2013 All Over Again - P_Radomski_CFA
8.Central Banks Have Gone Rogue, Putting Us All at Risk - Ellen_Brown
9.Gold Stocks Forced Capitulation - Zeal_LLC
10.The Post Bubble Market Contraction Thesis Receives Validation - Plunger
Last 7 days
Fed is Doing More Than Just Raising Rates - 14th Oct 18
Stock Markets Last Cheap Sector - Gold - 14th Oct 18
Next Points for Crude Oil Bears - 13th Oct 18
Stock Market Crash: Time to Buy Stocks? - 12th Oct 18
Sheffield Best Secondary School Clusters for 2018-19 Place Applications - 12th Oct 18
Trump’s Tariffs Echo US Trade Policy That Led to the Great Depression - 12th Oct 18
US Dollar Engulfing Bearish Pattern Warns Of Dollar Weakness - 12th Oct 18
Stock Market Storm Crash, Dow Plunges to Trend Forecast! - 12th Oct 18
SP500 Stock Market Sell Off Well Forecast by President Trump - 11th Oct 18
USD and US Tr. Yields Retreat, GBP Gains on Brexit-deal Report - 11th Oct 18
Loss Of Yield Curve "Shock Absorber" Could Mean A Rough Ride Ahead For Markets & Housing - 11th Oct 18
Just How Bearish is the Stock Market’s Breadth? - 11th Oct 18
Here’s Why Gold Stocks, Gold, and Silver Are Great Buys Now - 10th Oct 18
Russian Ruble Technical Chart Analysis and Forecast - 10th Oct 18
Society Trends To Keep in Mind in the USA - 10th Oct 18
[eBook] How to Identify Turning Points in the Market - 10th Oct 18
Euro Vulnerable as Slowing Growth Reveals Underlying Issues - 9th Oct 18
Construction Companies to Watch For in 2019 - 9th Oct 18
ECB Meeting Minutes and US Inflation Data in Focus - 9th Oct 18
Interest Rate Shock-Time to Find Out Who has been Swimming Naked - 9th Oct 18
Unintended Consequences of Expanding Sheffield's Best Ranking State Secondary Schools - 9th Oct 18
Crude Oil Price Trend Forecast 2018 Update - 9th Oct 18
Inflation Is Starting To Heat Up - 8th Oct 18
Stock Market Seasonal Influence at Work - 8th Oct 18
Barrick Randgold Deal Breathes New Life into Gold - 8th Oct 18
Stock Market Sell Off, Dollar Rally Expected, Now What? - 8th Oct 18
The Chartology of Gold and Silver - 8th Oct 18
The Income for Life Playbook - 8th Oct 18

Market Oracle FREE Newsletter

Trading Any Market

key Issues Affecting the London Oil Market Today

Commodities / Crude Oil Jun 10, 2015 - 11:02 AM GMT

By: ...

Commodities

MoneyMorning.com Dr. Kent Moors writes: Greetings from London, where I am hosting a special three-day event for a special group of subscribers. The sessions follow almost a year of preparation and are introducing a major stimulus to profits from investing in worldwide energy.

You will be hearing more about this approach in the future, so stay tuned.

Today, however, we have an immediate development to consider. The London market is again trying to make sense of events in oil. As I have noted here in Oil & Energy Investor on many occasions, the oil trade in London and the Dated Brent benchmark set here daily are more sensitive to global events than the trade in New York (where the other major benchmark, West Texas Intermediate, or WTI, is set).



Despite being a better grade of oil than more than 80% of the crude traded on a daily basis (and slightly inferior in content to WTI), Brent is the international standard. More oil is traded daily using the Brent price as a standard against which the volume is discounted than any other yardstick.

Anomalies in the oil sector tend to hit the London market first. And today there are two issues at play.

OPEC Holds Production Constant

First, last week OPEC again released a statement that it’s holding its production constant. No real surprise here. Yet what the announcement is actually masking has a much more pervasive impact. The Saudi-led cartel has incased its overall monthly production to well over 30 million barrels a day, a figure in excess of global demand levels.

This is continuing to temper what normal demand would do to oil prices at this point. Normally, we would be seeing a more protracted increase in price. Why, then, is OPEC apparently shooting itself in the foot this way?

Because something else is going on inside the cartel, and it is straining the ability of the Saudis to continue controlling OPEC’s actions.

The decision last November to keep production constant, opting to maintain market share in competition with the likes of American shale and Russian exports, rather than cutting the amount released to increase prices, did not sit well with several OPEC members.

While all of the countries have economies dependent upon the sale of oil, Nigeria, Iran, Libya, and Venezuela each have budgetary disasters demanding much higher crude prices. Saudi Arabia, Kuwait, and the United Arab Emirates have hard currency reserves sufficient to withstand lower returns. Therein lies the rising internal tension.

The Saudis Are in a Bind

OPEC maintained the policy in its meeting last Friday. In the interim between the decision at the end of last year and today, on the other hand, those members most reliant on higher prices have been selling well in excess of their monthly cartel quotas in a desperate attempt to gain revenue. That the global price has been increasing nonetheless indicates how much additional pressure is coming to bear from rising aggregate demand.

But it has put the Saudis in a difficult situation. They decided to adopt a policy similar to one they introduced in the mid-1980s. Then, in a far different pricing environment, Riyadh decided to discipline members of OPEC selling volume in excess of quotas by opening up Saudi exports to drown the market and collapse prices. Other members understood the lesson quickly and retreated.

Not so this time. The increase in Saudi production is now meant to mask the increasing production by other OPEC members. A move to protect market share has devolved into a losing attempt to justify counterproductive tactics by others.

This is not sustainable. Every OPEC nation, including Saudi Arabia, has been expending hard currency reserves to support low prices (and, thereby, market share). Saudi Arabia just has a larger coffer than others. In fact, all OPEC nations have been raiding their respective treasuries for some time. And three of the most vulnerable (Iran, Libya, and Venezuela) have already publicly called for a cut in production to increase prices.

Even Saudi Arabia, the best-off of all the OPEC nations, still needs a crude oil price averaging some $80 a barrel to pull even. Others, require prices well above $100 a barrel.

China Lowers Its Crude Imports

The second issue hitting is the latest misread of what’s going on in China. There are reports that Beijing is lowering its imports of crude oil.

Now, some pundits have immediately labeled this an indication of everything from declining Chinese domestic market economic expansion to fears of deflation.

In reality, however, in addition to seasonal adjustments in oil purchases, the decline in imports also reflects large increases that have taken place in early months. Far from any signal that there is something unravelling in China, it is largely much simpler.

China has been stockpiling cheaper crude for most of this quarter (and last) at discount rates. True, we may eventually see a genuine cooling off down the line. But this isn’t it.

As for the price of oil? Both West Texas Intermediate and Dated Brent are up more than 3.2% today as of this writing.

I’ll continue to closely monitor the global events affecting oil and other energy investments… and let you know the best ways to play these to your advantage.

Source :http://oilandenergyinvestor.com/2015/06/these-two-issues-are-affecting-the-london-oil-market-today/

Money Morning/The Money Map Report

©2015 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules