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Another day in bearish territory?

16 Nov 2017 09:44 GMT

By A/S Global Risk Management.



The geopolitical risk premium remains as the conflict between Saudi Arabia and Iran continues, but for now, focus seems to have shifted to U.S. shale oil output.

The OPEC meeting in Vienna is likely still the next big date to watch for the oil market. Doubts about the deal have started to emerge as some question if and how long the deal will be prolonged. Russia has not officially made a decision yet, and two Russian CEO's have expressed skepticism towards an extension of the deal as the price is above 60$ and a fear of U.S. shale conquering market share.

However, the general consensus from Russia does not seem skeptic, but just a little less aggressive than in the early days of the production cut deal. Meaning that the outcome of the 30 November OPEC meeting will likely conclude in an extension. But question is of how long. As the market looks now, a lot of tensions has been built around the meeting meaning that it has to surprise with some highly bullish outcome in order not to disappoint.

As mentioned yesterday, the International Energy Agency (IEA) just released the Oil Market Report 2017 containing a statement: "... absent any geopolitical premium, we may not have seen a "new normal" for oil prices". Meaning that the current level is not sustainable in longer term as the report states that supply will overtake demand during H1 2018.

So, looking at the current supply situation; it looks like IEA might be right. U.S. shale production has seen a remarkable increase in production during the past 2 weeks, with production figures being the highest since at least 1983, just topping the most recent production peak of 2015. If the WTI price continues to hover around the current level of 55$ the shale production is likely not going to decrease any time soon.



A/S Global Risk Management is a provider of customised hedging solutions for the management of price risk on fuel expenses. The company has offices in Denmark and Singapore. For further details about its risk management products and services, please call +45 88 38 00 00 or email hedging@global-riskmanagement.com.


Image: Michael Poulson, Oil Risk Manager at A/S Global Risk Management. Image credit: A/S Global Risk Management




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