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What You Probably Don’t Know about the Oil Prices Craze

What You Probably Don’t Know about the Oil Prices Craze

The news about the Saudis and Russians and the monitoring of the oil prices to help stabilize the market is what’s literally dominating the mainstream. The situation is so dire that the optimism exhibited by the various shareholders seemingly can’t die down. But, irrespective of the impact such an extremely unlikely alliance could bring, sanity is needed for the betterment of the producers.

OPEC member countries are expected to meet in Algeria in the coming weeks with hopes of capping the production. Following the leaked news of this forthcoming meeting in August, crude oil prices rose by 12% as the speculation grew. The month is barely halfway, but the cost of crude in the US is up by 7% already, only highlight the severity of the issue at hand.

Although the volatility is worrying, marketers are as hopeful as ever, perhaps knowing that the quiet moments will not last. There’s little news that appears convincing about the expected meeting following the Iran’s stubbornness, and the market figures seem to be exhibit flair of resurgence.

Russia-Saudi Oil Prices Agreement

Brent Oil has been nearing the elusive $50 a barrel mark despite the instabilities and uncertainties. As if that isn’t perfect enough, the news of the potential Russia-Saudia Pact suddenly appears vivid. If both parties are indeed for higher prices without initiating the cuts, then the plot is getting juicier.

In the midst of the confusion, the OPEC Chief, Barkindo, appeared upbeat ahead of the two-day meeting. In fact, the fact that the expected agreement can be termed as an all-or-nothing deal means that skeptics are all, but expected. Failure to agree during such torrid times will mean that lower production, and not the, highly probable, higher oil prices will not be attained.

The Trouble Beneath

You may be probably wondering what’s triggering many of the producers to resort to a quick and unofficial meeting meant at solving the prevailing crisis. The truth is, most of the globe’s notable producers of crude oil are locked at the deepest end of problems. Venezuela’s Maduro government is struggling with lots of food riots and protests staged by its people amid the dwindling cash reserves.

Africa’s mega oil producers, Nigeria and Libya, aren’t any different as violence and insecurities as well as recession are ravaging the locals. But, if you think it is the developing countries only that are struggling then you are wrong. OPEC member states from the Arab world – Kuwait, the UAE and Qatar, are currently selling sovereign debts to stay afloat.

Since the onset of the menace two years ago, the better-off have been struggling with the same problem. The Saudi Arabia is reported to have spent over $US190 billion located at foreign reserves, news that might appear shocking. As a matter of fact, the government has been surviving on loans borrowed from foreign banks. A slight walk across Riyadh’s streets shows how the situation is as businesses are bemoaning the scarcity of money in circulation.

Russian, who is currently on a pact with Saudi Arabia, saw her economy shrink by 4% in 2015 although if the current plunge continues, the sinking will deepen further. Of course, Russia has always maintained a steady growth in her economy and the slump means that the scourge is indeed real.

News outlets believe that these few countries are just a tip of the iceberg as with the current market dynamic, the mega producers won’t escape the developing budget deficits. Estimates from RBC Capital markets show that around $100 a barrel is required to restore parity, which is largely a mirage. You can only image if the prevailing $40s a barrel will even get anywhere near that.

So, Are The Freezing Talks Feasible?

As the matter has been dominating the mainstream, several analysts couldn’t simply sit back with their views. RBC energy analyst Helima Croft knows that even with the absence of a formal meeting to salvage the markets, the reported pact between Russia and Saudi Arabia is still plausible. It must be noted that while most of the global producers are already producing flat out, the potential discussion is a rational attempt to shore up the sentiment.

But, it is Russia’s norm of going against agreements that worry everyone. Way back in 2001, Russia had promised to cut its production by half, but surprisingly did the opposite. Aside from that, the ISIS factor where Russians are openly pro-Assad, and the other parties against that can’t be overlooked. The Iran factor still lingers on, a factor that still poses a threat to the whole idea.

Meanwhile, Morgan Stanley Predicts Volatility

With the largely anticipated meeting drawing closer, all the Wall Street broker, Morgan Stanley, can expect is an even more enhanced volatility. OPEC, according to the markets, is the central banker of oils and simple jawboning scares the markets, creating uncertainties and more instabilities.

Despite everything, however, all fingers are crossed as everyone waits to see if indeed it will be the case of a third time lucky for a Saudi – Russian deal.

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