Stock exchange news. As we have already informed earlier, this year’s first summit of the Organization of the Petroleum Exporting Countries (OPEC) was promising to generate numerous surprises.
- Firstly, the president of Iran Mahmoud Ahmadinejag was supposed to attend it.
- Secondly, in the course of this meeting, for the first time since war started in Libya, the world’s leading oil exporters were going to discuss the question of the necessity to rise quotas on “black gold” recovery.
The main intrigue, as experts of forex Academy and Masterforex-V stock exchange trade admit, remained the tacit opposition between two main players on this field – Saudi Arabia and Iran. If the first player made a speech in favour of raising the quota on recovery, and lowering oil prices accordingly, the second player, being absolutely satisfied with high prices, made a speech strongly against it. Both parties were representing the interest of the whole range of oil recovering countries, many of which would prefer not to openly speak about their position.
- During all this time investors could only guess which of the two trends will take over. The majority of experts were certain that quotas on oil recovery will anyway be raised. Analytics of Societe Generale assessed the chances of such decision being made at the level of 65%. Finally, on June 8 the long-expected summit was held.
For investors: which questions were discussed at the meeting?
The meeting of ministers of 12 countries that make up OPEC (Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela; they are jointly developing about 40% of the world’s oil stock) was held in the capital of Austria, Vienna:
• The debates on raising the quotas on oil recovery, as expected, showed high intensity. The debates were held behind a closed door throughout several hours.
• Saudi Arabia made a speech in favour of raising the quotas, suggesting to raise the daily volume of recovery by about 1.5 million barrels (exactly this amount was earlier exported by Libya) in order to reach the level of 26.345 million barrels. Let us remind that the recovery by the countries of cartel in May amounted to 24.84 million barrels daily. The Saudi Arabians expressed the general opinion of the members of the Cooperation Council for the Arab States of the Gulf. They insisted on having the fair oil price of $70-80 per barrel. Allies of rise explain their position by the fact that by the end of the year demand for oil will traditionally rise, and, against cutting oil supply from Libya, this will inevitably lead to the establishment of deficit and, consequently, price rise.
• Six members of cartel made a speech against raising the quotason recovery, among them the first violin was played by Iran, Ecuador, Venezuela, and Angola. They believe that the market is sufficiently supplied by oil, supply and demand are balanced; therefore, there exist absolutely no reasons for the increase of its recovery. These countries consider $100 per barrel to be a fair price of oil.
• In the course of negotiations, information leaked out that two parties have supposedly agreed about some “working variant”, according to which the quota can be raised, but only by 1 million barrels daily, taking into consideration the following (in a three months’ time) rise by another 500 thousand barrels.
• However, by the end of the meeting on June 8 the Secretary General of OPEC Abdallah-el-Badri announced that agreement on the question of raising quotas was not reached. Consequently, the discussion of the question is delayed for another three months.
How did the markets react to OPEC decision?
In fact, the situation of uncertainty was fixed at the meeting in Vienna. It was neither claimed that quotas remain at the same level, nor that they are raised. It has never been done this way before. The delay of discussing the question for three months, in view of the fact that experts will be thoroughly studying the market all this time, certainly touched oil price:
1. As soon as results of the meeting in Vienna were announced, at the bids of New York MercantileExchange(NYMEX) thecostoffuturescontractforoilof WTIgradeinJulyroseby$1.65 from the level of June 7 and reached the level of $100.74 per barrel. According to the results of bids at London InterContinental Exchange on June 8, the cost of contractforoilofBrent Crude grade in July rose by $1.07, the bids closed at the level of $117.85 per barrel.
2. Lack of consensus withinOPECgives grounds for investors to fearthe deficit of oil supply in future, the prices have consequently gone up at once. Moreover, the influential international organization of petroleum exporting countries demonstrated evident inability to control the price rise in this sphere.
3. According to many analytics, the trend in rising oil prices will now be hard to stop.
4. The only thing that stops the uncontrollable rise of quotations is traders’ certainty of Saudi Arabia, as the only OPEC member with considerable reserve opportunities, despite the decision that is taken by the organization, unilaterally continuing to raise quotas on oil recovery. Its “allies” will certainly follow the example, whereas its “opponents” may possibly also be unable to resist such temptation. Moreover, it is not a secret that the current daily recovery exceeds the quotas established in 2008.
5. Traders were also influenced by the news about a considerable shortage of oil stock in the USA. On Wednesday US Energy Information Administration announced that last week the country’s oil stock dropped by 4.8 million barrels. This news had a positive influence on the markets and slightly slowed down the price rise of “black gold”.
6. US president Barack Obama has already claimed that in case of necessity the possibility of using the strategic oil stock of the country is not eliminated. However, America as the world’s largest oil consumer, demands from Riyadh to ensure safe agreement within OPEC and stop the price rise. All this certainly speaks in favour of Saudi Arabian independent recovery increase. Maybe this will be able to slow down the rising trend during the next three months of uncertainty.
According to analytics of the Chair of In-depth Study of TradeSystem of Masterforex-V, the current price of the barrel of oil is traded flatly within Daily level, by leaving which the following course of events will be shown: either breaking local maximum level and continuing the long-term bullish trend in the form of strong с(С) wave; or forming bearish correctional FZR of Daily level, where MF sloping channel will serve as a support level into the area of 91.12.
The Editorial Board of “Market Leader” magazine, jointly with experts of , holds a questionnaire in the traders’ forum: do you agree that the trend in growing oil prices will remain?
• yes, any political intervention will only strengthen it;
• no, there exist many other factors, which are able to change it.
