OPEC and Russia Discuss Oil Freeze
Was I wrong?
Last week, I hinted that the meeting in Algeria would end up like Doha: a complete failure.
Can you blame me? Call me a pessimist, but it’s difficult to see the Saudis capitulate on any front in their oil war.
Then something happened that made me begin to doubt my conviction this week.
Maybe I was wrong. What if THIS time the world’s biggest oil producers will swallow their egos and forget about boosting their own profits for the better good? Perhaps these countries will push aside their quibbles, centuries of conflict, and do what my mind considers the impossible: agree to an output freeze.
Hey... anything is possible, isn’t it?
Then I stop and think about the situation in which these producers find themselves; the last two years of watching crude prices plummet to $26.21 per barrel last February; and the fierce rows that have escalated in recent years amongst the top players.
Of course, we also have the other elephant in the room that oil producers dare not utter. I’ll touch on that in a moment.
And yet, there’s only one person that’s staring at a win-win situation: you.
War of Words
At this point, you might be wondering what instilled that brief doubt in me.
Considering how bullish I am on oil, wouldn’t it be better that I’m wrong anyway? After all, an output freeze would give a nice lift to crude prices.
So what was the glimmer of hope giving me pause? It was nothing more than the underhanded war of words that I was predicting would take place.
Here’s what happened...
On Monday, Saudi Arabia and Russia got together and announced that both have agreed to cooperate to help stabilize the oil market.
And yet, what traders hear in their heads is that an output freeze is on its way. Never mind the obstacles to cooperation that I just told you about, because these two will finally let bygones be bygones and freeze production.
That false hope was enough to boost crude prices, with Brent trading 8.6% higher at one point on Tuesday.
Unfortunately, they got caught up in the war of words, because a deal to freeze output isn’t exactly what happened.
Look a little closer, and you’ll find that two of the world’s largest oil producers committed to absolutely nothing.
In fact, it wasn’t long before those old rivalries came back.
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Like I told you last week, Iran would come out and reiterate that it’ll never curb output until the country’s oil output reaches its pre-sanction levels. And being true to form, Iran even helped tease the notion of a deal, saying it would be willing to join a production cut — but only after it reaches pre-sanction output.
Now, Russia will walk back its rhetoric to come in line with its ally, insisting that Iran be exempt from freezing output.
And just like that, we’re right back to square one in just a matter of days.
So why would the two even bring it up if they have no intention of cutting a deal? I’ll even give them the benefit of the doubt and not question that anyone would follow through on it, too.
The answer is simple: money.
Call OPEC whatever you’d like, but you have to admit it knows how to manipulate prices. Offering even a whisper of a production freeze would result in billions in additional revenue.
Now it’s your turn to turn an oil profit...
I did mention that you’re in a win-win situation.
If I’m wrong and we see a real agreement to freeze output, crude oil prices will certainly find the support they've been desperately looking for. We may even see prices make a run to $60 a barrel — anything is possible!
Thing is, there’s another wild card that everyone has forgotten about, but I have a feeling it’s going to rear its ugly head sooner or later.
Look, I’ve been telling you all year to forget the day-to-day bickering inside OPEC.
If there’s only one thing I urge you to do, it is focus on the fundamentals. The numbers are not only in our corner, but it’s impossible NOT to see that we’re moving into the next bull cycle for oil.
Our rig counts are at historic lows. Oil output within the U.S. is finally heading lower after a six-year shale boom exploded. Moreover, demand is as healthy as ever, with the United States consuming 20.1 million barrels of petroleum products per day last week.
Yet there’s an even more intensive catalyst that has been long forgotten by the public.
And I’m going to tell you everything you need to know about it next week... Stay tuned.
Until next time,
A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.
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