Saudi Arabia says not to trust producers to cut production
the oil price collapse seems to be over after the Organization of petroleum exporting countries (OPEC) and Russia have reached an agreement to freeze output levels. The price of West Texas climbed above $ 30 and ended a losing streak that began in early February. The details of the agreement had no signs of reduced production levels that have flooded the world in the substantia nigra, but it was enough to stabilize the price of crude.
The agreement was on and off, and since February 11 when comments from Russia showed a willingness to reach an agreement to increase the price of oil. A production freeze was announced with the support of Saudi Arabia, Russia, Venezuela and Qatar. Now it seems that the comments of Saudi Arabia about the agreement is to freeze output levels, but will not include a reduction in crude production. Oil prices fell 4.6 percent after the news. The uncertainty in energy prices has kept the currencies of commodity: AUD, NZD and CAD up and down strongly correlated with oil prices. A stable price for a barrel of oil is needed to end the compound effect these economies suffer with their own growth slowdowns.
The offering is expected to remain high in the short term without a slight increase in global demand for. The US Energy Information Administration released the weekly inventory numbers Wednesday, February 24 at 10:00 am EST. Inventories are expected to increase by 3.2 million barrels. Reduced demand for crude oil and refined products inventories continue to grow downward pressure on oil prices and the currencies of commodity.
The problem is that the agreed ceiling for the combined production is January 2016 production levels, which, most OPEC countries and Russia are at record levels. Iran was not part of the agreement and after a diplomatic disagreement with Saudi Arabia at the beginning of the year, it was unlikely that they would participate. Iran has been forced to cut production due to sanctions and pumping at almost half the levels of 2011. Possessing the world's fourth largest reserves they need to double their current production to match the levels of sanctions pre that would still leave behind other OPEC members that have taken over left by the absence of Iran.
The uncertainty in the price of energy commodities currencies preserved: AUD, NZD and CAD rising and falling in the high correlation of oil prices. A stable price for a barrel of oil is needed to end the compound effect these economies suffer with their own growth slowdowns. The glut of crude supply and the difficulty of reaching an agreement that ends in a production cut is unlikely. Market share is a concern that most producers know that if they cut to raise prices, their competitors will make a move. Saudi Arabia is in a position where he does not trust in its totality the remaining OPEC members to stick to an agreement and can not afford, at least for the moment, the current prices. Russia and Venezuela are not in a comfortable position, but there is little they can do if there is no production cuts.
Cheap oil has benefited consumers and inflation expectations in the energy importing nations. India was one of the main beneficiaries. On the other hand the low inflation expectations hit the plans of the central banks of Japan and Europe as they hope to guide their economies in a faster rate of growth. Energy companies worldwide face rising risk of bankruptcy if prices of commodities remain low, which could end up hitting financial institutions that provided the credit.
FX events to watch this week:
Wednesday, February 24
10:30 USD Inventories of crude oil
7:30 p.m. AUD Private Capital Expenditure q / q
Thursday, February 25
4:30 GBP Second Estimate GDP q / q
8:30 USD durable goods orders m / m
USD unemployment claims
Friday 26 February
8:30 USD prelim GDP q / q
* All times EST
for a full list of events planned in the foreign exchange market check the economic calendar MarketPulse
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