Oil Price Tumble is Poker Game, Producer Nations Should be Forewarned: Market Analyst. (RN).
Oil prices took another tumble on Monday as Bloomberg reported that OPEC’s members are resisting calls to cut production. The US is pumping oil at its fastest pace in almost three decades, while Russia’s output has climbed to almost a post-Soviet record.
Goldman Sachs predicts that crude oil prices will fall to $75 a barrel next year before returning to $80 in the medium-term.
This is going to be hard on producer countries which have gotten used to a price of $100 in recent years, the Wall Street bank says.
However, Mike Ingram, a market analyst for BGC Partners, one of the world's leading inter-dealer brokers, says there is definitely some kind of a game behind it.
“There are a few things in play here: Saudi Arabia in terms of its lifting costs is in a comfortable position as, indeed, are the other Gulf States,” he told Radio VR. “And if they want a price war, they are quite well-positioned to sit that out. They’ve got huge reserves; they can run a budget for a number of years at this price level.”
“Russia is actually in a reasonably strong position as well,” he added. “They could probably go 3-4 years at this level. On paper, it is at least a possibility.Everybody seems to be playing a game of poker at the moment. And nobody quite knows what cards people are being played.”
However, Ingram warned that although Russia may not run out of money after 3-4 years, it will run out of comfortable liquidity. One would hope that supply and demand dynamics would sort themselves out globally, but ultimately it is in Russia’s interests to diversify its economy into other non-commodity areas.
What is going on now in the oil markets should serve as a warning to a number of countries which are overly dependent on the extraction of primary resources and processing.
They need to move the economy forward towards something a little more value-added, he added.
Another thing which is widely recognized, Ingram said, is that there may be a situation where OPEC is losing its pricing power in global oil markets and Saudi Arabia is unwilling to remain the swing producer within OPEC.
He added that it is very likely that the US is heading towards full energy independence by 2018-2019, and this is also impacting energy prices. Hmmm....The Saudi's their budgets are made for $95 /Barrel. He who controls the refinery.... controls the price at the pump.
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Related: LARGEST OIL REFINERY IN U.S. IS OWNED BY SAUDI ROYAL FAMILY AND ANGLO-DUTCH
