Daily Management Review

Investors Expect Oil Prices Expected to be Lower for Even longer After OPEC’s Decision to Lift Produciton Ceiling


12/07/2015




Investors Expect Oil Prices Expected to be Lower for Even longer After OPEC’s Decision to Lift Produciton Ceiling
A decision by the OPEC to lift a production ceiling resulted in global fall in oil prices influencing the investors and experts to predict that the oil prices would remain low for even a longer period of time.
The OPEC decision also resulted in U.S. crude futures reaching a value of below $60 a barrel – a 10 year low.
 
Locking profitable prices for future deliveries would, in all probabilities, be possible for U.S. shale producers as they are one of the casualties of OPEC's strategy of pumping hard to retain market share.
  
Last week, the Organization of the Petroleum Exporting Countries failed to  agree on an output target to reduce a bulging oil glut that has cut prices by over 60 percent since 2014. Following this the U.S. crude futures for front-month delivery fell below $40 per barrel on Monday.
 
Investors had unusually been willing to pay more to protect against a surprise rally in the price than a surprise fall in the run-up to the OPEC decision.
 
The investors are once again expecting a higher likelihood of further declines than that of a bounce back which is described as the bet has now been unwound. The option that gives the holder the right to sell crude oil futures at just $35 a barrel is one of the most popular options contract.
 
"Oil is going to make lower lows and lower highs for the foreseeable future and, in terms of market reaction post-OPEC, I'm not surprised, but it does leave the door open for prices to fall," Gain Capital analyst Fawad Razaqzada said.
 
Just before the OPEC meeting and as recently as late November, the U.S. crude for December 2022 delivery and onward was trading slightly above $60 per barrel. This fell down to below $60 for contracts out to December 2024.
 
"It means that there is a loss of confidence in the market after OPEC, and people expect low prices to last longer", said Oystein Berentsen, managing director of crude oil at Strong Petroleum in Singapore.
 
"Hence the back of the curve will be under pressure from producer hedging via selling the back of the curve to limit loss or lock in a small profit to reduce risk," Berentsen said.
 
Goldman Sachs said after the OPEC-meeting that it expected oil prices to remain "lower for longer," with a risk that oil prices could fall as low as $20 per barrel.
 
"The rising probability that markets may need to adjust through 'operational stress', when surpluses breach capacity, leaves risks to our forecast as skewed to the downside in coming months, with cash costs near $20 per barrel," the bank said.
 
It has been quite some time that bearishness has been brewing in the derivatives market. In the last two months, holdings of December 2016 put options at $25, $30 and $35 a barrel have risen 41 percent, options data shows. The open interest in those three contracts now equates to nearly 90 million barrels of oil.
 
(Source:www.reuters.com)






Science & Technology

Scientists Discover Largest Ever Under Water Volcanic Eruption Near New Zealand

Bitcoin craze increased load on the power grid to the maximum

PC And Server Performance Slows Down Due To Security Patches For Chip Flaws, Says Microsoft

Cybersecurity Firm Claims Cryptocurrency Monero Might Be Getting Funneled To North Korea University

The Way We Travel Will Be Changed by The Colorless, Odorless Gas - Hydrogen

EU's Big Change In Data Protection Rules Makes Businesses To Get Ready For It

Artificial Intelligence Helps NASA Find An 8th Planet In Orbit Of A Distant Star

Australian Research Success Could Mean Shatterproof Cell Phones Could Soon Be A Realityv

Top ten hi-tech events of the year

Tesla Considering Designing And Developing AI Chips On Its Own To Support Its Auto-Pilot Project

World Politics

World & Politics

Take and go away: new approach to refugees in Europe

Both The Korean Countries Will Come Together In Olympic Talks

Parties of Germany agreed on the migrants problem

Munich Re: Natural disasters caused record damage in 2017

High-Level Talks To Be Held Between North And South Korea In Over Two Years

Sexually Abusing Children Interests An Estimated 20,000 British Men, Shows Police Monitoring Of Chat Sites

2018 Could See An Increase In Terror Attacks Where Both ISIS As Al-Qaeda Continue To Present Threats

What will happen to European populism in 2018?