Oil once more trades at a near 2-month low and as vicious as it has been, the oil price collapsing cycle does not look to be over just yet. However, large institutions and Central Banks further seek a longer period of stability, especially in the eyes of the Bond Markets.
The US are still heavily over-supplied and refineries continue to close down, due to mounting costs from a alack of productivity. The big players are still looking at holding sub $50 and hedging their risk with the Futures Markets... These "players" may be the ones the Central Banks turn to in the near future to assist in the un-cuffing of this downward spiral.
OPEC have been heavily pressured by Venezuela (Country with the World's largest known Oil reserves) to do something about the Oil price and have been supported by one of Africa's biggest Oil producer, Algeria. Contrary to views from the Gulf who are welcoming the lower prices, seeing it as a chance to reform & these contrast of views continue to bear onto a larger Geo-Political issue. But how big is this issue?
Saudi Arabia, the world's largest Oil mover has been doing things recently, that in the last 30 years have been unimaginable ;
1. Withdrawing money from overseas;
2. Delaying contract payments; and
3. Taxing lands.
So how does the Market quantify these issues?.. Let's pause for a second and cast our mind backs to mid 2007 when the Oil price hit $145.00 per barrel and the Gulf generated more money that they knew what to do with & the fact remains that Saudi's Debt:GDP ratio is still less than 2% and in the next 10 years is estimated to stay below 7%... The main Gulf states could actually live comfortably for several years from these revenues built. So contrary to the "Geo-Politics" - Investors are more focused on the supply-side issues and may be more keen to ignore the political nature surrounding the MENA regions.
Storage is still reaching tank-tops and if this trend continues, we may see for the first time in 20 years - oil investments declining for two consecutive years and this may be an indication for future oil markets.. as they look to continue their downward spiral.
Optimists still seek a bottoming level - looking at Iran supplies for next year to help boost $60+ for 2017 (perhaps a fascinating new dynamic for the near future), however the fundamentalists outlook is further lower to find a strong re balance in the market.
Best of luck
Anish
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