Them (oil) Cats Don’t Herd
April 18, 2016
OPEC leaders failed over the weekend to agree on a cut in oil production which might have stabilized global prices. Gosh, who would have imagined that oil producer’s greed would trump their own long term interest? Don’t that beat all.
Meanwhile, as I’ve discussed elsewhere on this page, something like 400,000 people have plunked down a 1000 bucks just for the chance to own an electric vehicle that will not even roll off the line for at least a year.
Something is happening here and you don’t know what it is, do you, Mr Exxon?
Brent crude, the global benchmark, was off more than $1 to $41.61 Monday morning, and West Texas Intermediate crude, the U.S. benchmark, fell to $38.77.
Falling prices may have been propped up somewhat by a strike in Kuwait, which has lessened global production and thus, tightened the gap between supply and demand — at least temporarily.
The weekend meeting in Doha, Qatar, had been closely watched because it could have introduced an element of coordination among most OPEC countries and Russia, the world’s second largest oil producer at the moment, and thus resulted in at least some limits to how much oil makes its way onto the market. A global oversupply of oil has driven prices down steeply since 2014.
Instead, however, Saudi Arabia pushed to include Iran in any freeze agreement. But Iran, emerging from international sanctions, has been rushing to ramp up its oil production and did not attend the Doha event.
While the market has largely expected such a no-deal outcome, the prospect of a bigger glut at a time when demand growth is likely to slow still doesn’t bode well with the sentiment.
“The market has mostly priced in the fact production rate will stay the same even before the meeting. But a failure to reach an agreement is bearish for sentiment and prices are likely to fall further later during the U.S. trading hours,” said Nelson Wang, an energy analyst at CLSA who forecasts U.S. oil prices to drop as low as $30 a barrel.
Hopes for a deal were a main catalyst in a rally that lifted U.S. crude prices more than 50% from their February lows. Much of those gains are likely to get wiped out, as oil producers might be looking to increase production to protect their market shares, analysts say.
Morgan Stanley warns that if the kingdom was to lift production from the current level of 10.2 million barrels a day to 11 million barrels a day as threatened, while other players also show no restraint, “rebalancing could be pushed all the way into 2018.”
The slump in oil prices that’s brought upheaval and cost-cutting to the traditional energy industry spared renewables such as solar and wind, which raked in a record $329.3 billion of investment last year.
The 4 percent increase in clean energy technology spending from 2014 reflected tumbling prices for photovoltaics and wind turbines as well as a few big financings for offshore wind farms on the drawing board for years, according to research from Bloomberg New Energy Finance released on Thursday.
“These figures are a stunning riposte to all those who expected clean energy investment to stall on falling oil and gas prices,” said Michael Liebreich, founder of the London-based research arm of Bloomberg LP. “They highlight the improving cost-competitiveness of solar and wind power.”