Tags: oil | production | cuts

Oil Production Cuts Are Coming

globe as oil spigot with red handle and one big drop of oil at end
(Vladislav Kochelaevskiy/Dreamstime)

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Monday, 12 November 2018 08:02 AM Current | Bio | Archive

The Saudi Energy Minister Khalid Al-Falih stated: “We, as responsible producers, are going to work, and work hard, to balance the market within a reasonable corridor… Demand for Saudi oil is tapering off, so the kingdom will ship less.”

To begin with, Saudi Arabia will export 500,000 fewer barrels per day next month than it exports this month.

As there are signs of a glut emerging in the U.S., the Saudi minister said it was too early to talk about OPEC coordinated production cuts.

Nevertheless, in the meantime, Russia and the UAE have also signaled their intentions to cut their production in order to stop the fall in oil prices.

Besides all that, and with the U.S. midterm elections out of the way, U.S. political pressure to keep oil prices lower may become less urgent.

In my opinion, we are probably at the bottom of the price range for crude oil and what Saudi Arabia would consider to be fiscally desirable. Global economic activity is doing fine and so the demand side of the equation is likely to hold up.

For now, the futures contracts for the December 2018 WTI Crude Oil (Nymex) contract as well as the January 2019 Brent Crude (ICE) contract are up by respectively 0.40 percent and 1.05 percent.

Besides oil, the dollar is also firmer with the dollar index DXY up by around 0.50 percent at about 97.50

Speaking about the dollar, in an interview by Fareed Zakaria that was aired on CNN yesterday, French President Macron said that the euro is not a clear alternative to the dollar thanks to the U.S. currency’s international strengths. Until now, we fail to make the euro as strong as the dollar. We made a great job during the past years but it’s not yet sufficient.

In my opinion, especially for long-term investors, it’s important to keep French President Macron’s statement in mind when making investment decisions. Of course, and as I’ve said here before, nothing goes up of comes down in a straight line.

Brexit and the British Pound.

The British pound (Sterling) weakened a little on the back of the eternal tedium of the UK-EU divorce (Brexit) process.

For the moment the pound (GBP) is at about $1.287, which is about 0.70 percent lower since Friday.

The most remarkable thing about this, is there must still be some people in the foreign exchange markets who are sufficiently awake as to be paying attention or paying a bit of attention to what passes for news in this saga. It seems unlikely that Artificial Intelligence (AI) or algorithms have developed sufficiently as to be able to make sense of the process, so it must be human intervention, not that humans can make sense of the process either.  

Italy Tweaks its Growth Forecast

The Italians are reportedly making minor tweaks to their budget proposals that of course includes the growth forecast for Italy, and which have to go off to the European Commission in some form of revised format tomorrow.

There is talk of tweaking the Italian growth forecast from 1.5 percent down to 1 percent for 2019.

This is all rather absurd as no one will know how fast the Italian economy is growing for several years and the margin of error in near-term forecast is almost certainly greater than 0.5 percent, but everyone pretends the numbers mean something, and then the EU should be happy.

Anyway, last Thursday, the European Commissions said that Italy’s economy would grow more slowly in the next two years than Rome thinks, with GDP rising 1.2 percent in 2019 and making budget deficits higher than assumed.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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With the U.S. midterm elections out of the way, U.S. political pressure to keep oil prices lower may become less urgent.
oil, production, cuts
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2018-02-12
Monday, 12 November 2018 08:02 AM
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