Monday, April 18, 2016

‘Doh-a Farce’? Brace for $35/bbl Brent?

The Oilholic is rather surprised that some people are actually surprised the Doha talks between major oil producers turned out to be a bit of a farce.

Well, in case you haven’t heard – the overhyped meeting between OPEC and non-OPEC crude producers aimed at introducing a production freeze has ended without an agreement.

Here is one’s take on the development in a Forbes column. The Iranians never turned up in the first place, and the 18 or so oil ministers who did, saw Saudi Oil Minister Ali Al-Naimi insist that there would be no coordinated oil production freeze unless the Iranians came on board. And there you have it – a predictable outcome, without the Saudis giving an inch.

So what’s next? The Oilholic deems a shot term return for Brent futures down to $35 per barrel as highly likely. If it is not achieved intraday today, we should probably get there early this week thereby wiping out some of the froth that built up ahead of the Doha non-event - unless of course breaking news of a Kuwaiti oil strike has the opposite effect. 

At the time of writing this post, both Brent and WTI front month futures contracts are trading down by over 6% and slipping towards the mid-thirties.

And here’s another prediction – one doesn’t expect OPEC to achieve anything at its next meeting in June either. Both Iran and Saudi Arabia are holding firm, and in no mood to compromise – something that is unlikely to change overnight.

Finally, cutting through all the pre and post Doha Talks hullabaloo, the Oilholic has also not altered his market forecasts – of Brent at or just below $50 per barrel by the end of 2016, supply-demand rebalancing by Q1 2017 and a medium term phase of low prices well shy of the mid-2014 highs before the price curve took a turn for the worse. That’s all for the moment folks! Keep reading, keep it crude! 

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© Gaurav Sharma 2016. Photo: Oil extraction site in Oman © Shell

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