Bijan Zanganeh, upon arriving in Vienna for the December 4 Organization of Petroleum Exporting Countries (OPEC) Ministerial talks, remarked, “We don’t see our production increase and return to the previous level in the market and our global supply as negotiable at all”. The OPEC countries – especially Saudi – would never want their market share to be taken away by new players like shale gas and those like Venezuela, Mexico and Russian Federation. In the USA, it would be illegal for oil producers to cooperate on production cuts.
Advertisement
“We aren’t swimming in oil, we’re drowning in it”, Chip Hodge, who oversees a $9 billion natural-resource bond portfolio as senior managing director at John Hancock in Boston, said by phone. The WSJ Dollar Index, which tracks the dollar against other major currencies including the euro, recently traded down 0.7% after the European Central Bank announced smaller stimulus measures that investors expected.
West Texas Intermediate for January delivery rose 50 cents, or 1.3 percent, to $40.44 a barrel on the New York Mercantile Exchange.
USA crude was trading up 11 cents at $41.19 per barrel at 0805 GMT, while internationally traded Brent was down 11 cent at $43.73. The problem with this strategy is that unless oil prices move quickly and substantially, the contango will largely defeat the price gains.
In the last few weeks, investors have run up big bearish bets, or short positions, betting on a fall in the price of crude oil, which could be rapidly unwound if OPEC were to give any signal that it might adjust its stance on supply.
Saudi Arabia boosted output to a record 10.48 million barrels a day in June, according to the International Energy Agency, and pumped 10.33 million barrels daily last month, data compiled by Bloomberg show.
Heading into the Vienna meeting, the cartel’s dozen member countries from Africa, the Middle East and Latin America, had yet to strike an agreement on tackling an oil supply glut, with Iran insisting that it plans to up its own production early next year.
Angolan Oil Minister Jose Botelho de Vasconcelos, when asked on Friday whether OPEC would maintain policy, replied: “I think so, I think so”. Most of the Gulf’s state oil companies price their crude at a premium or discount to a benchmark.
Advertisement
“The others aren’t going to make any concessions to allow that”, said Weafer of Iranian oil’s return. Shell’s decision alone to cancel its Cameron Creek oil sands project in Alberta will prevent about 80,000 barrels per day from coming to market. According to his estimates, only 70% of shortfall in production can be substituted with the price of $40 a barrel. RBOB gasoline futures remained flat at 1.296 a gallon at the NYMEX.
