OPEC cuts backfire as shale firms thwart rebalance goals
The future of OPEC's output cut deal will be determined at a meeting in November, said the Oil minister of Kuwait. This news was a signal that members of the cartel may revise quotas for production earlier than expected. In May, the members of the organization decided to extend the agreement for another nine months, until March 2018, but pressure from the shale producers may force OPEC to re-join the price fight. So far, the cartel is responsible for monitoring compliance with the agreements, which by the way, were taken fairly tepid. So in Iraq, production decreased by only 28% from the proposed quota, while in other countries the fulfillment of obligations fell to 75%. The outcome of a technical meeting of OPEC in St. Petersburg was the introduction of quota for Nigeria at 1.8M barrels. The country has not yet reached this limit.
Both good and bad implications foroil market sentiments had the news that decision of the world's largest mining company BHP Billiton to sell shale business in the US. It should be noted that a number of shareholders of the concern, such as Elliott Management Corp. And Tribeca Investment Partners repeatedly called on the leadership to take such a step, which could be dictated by the increased risks in the future for this industry. Probably the company decided to protect itself in advance from the difficulties of fighting for a market share with OPEC producers, foreseeing a limited potential for growth. This version is very plausible, given that the last fiscal year the concern ended up with a profit of $5.89 billion.
Today, oil prices continue to retrace, although less pronounced than on Monday. Reports API and EIA on Wednesday likely will not be able to realize their capabilities of market catalysts, given the decline in US inventories due to seasonal increased fuel consumption. On Friday, an assessment of the prospects for global growth by the heads of the Central Bank at the symposium in Jackson Hole may be reflected in oil quotations, as the supply side dilemma forced participants to pay attention to the sentiments on demand side.
Economic expectations in the euro area have deteriorated slightly, the ZEW poll showed. The index fell from 17.5 to 10 points in August, the average forecast was 15.0 points. The US currency recoups after a massive sell-off on Monday, but futures on the federal funds rate continue to show pessimism in anticipation of Yellen's peaceful remarks on Friday. However, given the overheating of the US stock market, strong consumer sentiment and demographic changes hindering inflation (which is beyond the control of the Fed), the regulator's head will probably indicate that monetary policy will be conducted according to the planned rate.
Arthur Idiatulin, Tickmill Market Analyst
Both good and bad implications foroil market sentiments had the news that decision of the world's largest mining company BHP Billiton to sell shale business in the US. It should be noted that a number of shareholders of the concern, such as Elliott Management Corp. And Tribeca Investment Partners repeatedly called on the leadership to take such a step, which could be dictated by the increased risks in the future for this industry. Probably the company decided to protect itself in advance from the difficulties of fighting for a market share with OPEC producers, foreseeing a limited potential for growth. This version is very plausible, given that the last fiscal year the concern ended up with a profit of $5.89 billion.
Today, oil prices continue to retrace, although less pronounced than on Monday. Reports API and EIA on Wednesday likely will not be able to realize their capabilities of market catalysts, given the decline in US inventories due to seasonal increased fuel consumption. On Friday, an assessment of the prospects for global growth by the heads of the Central Bank at the symposium in Jackson Hole may be reflected in oil quotations, as the supply side dilemma forced participants to pay attention to the sentiments on demand side.
Economic expectations in the euro area have deteriorated slightly, the ZEW poll showed. The index fell from 17.5 to 10 points in August, the average forecast was 15.0 points. The US currency recoups after a massive sell-off on Monday, but futures on the federal funds rate continue to show pessimism in anticipation of Yellen's peaceful remarks on Friday. However, given the overheating of the US stock market, strong consumer sentiment and demographic changes hindering inflation (which is beyond the control of the Fed), the regulator's head will probably indicate that monetary policy will be conducted according to the planned rate.
Arthur Idiatulin, Tickmill Market Analyst
This analysis is provided as general market commentary and does not constitute investment advice. Past performance is not indicative of future results