Thursday, January 28, 2016

Opec: A Rescue Mission For The Frackers?

(Drivebycuriosity) - Oil prices are on a tear again today. The price for Brent Crude jumped temporarily 7%. There are rumors that Opec & Russia might talk about cutting oil production together about 5% to raise the price of oil (reuters). Really?

This would be a sharp u-turn. In the recent months we had learned that Saudi Arabia is pumping more oil to squeeze their competitors, especially the US frackers, out of the market. Reports that many frackers are in a deep mess - and some are already going bankrupt because oil prices below $30 don`t cover their costs any more - seemed to confirm this alleged strategy.

If Opec & Russia would indeed cooperate and hike the oil price together up to $40 and higher, this would be a rescue mission for the frackers. They would become profitable again and might even increase their oil production. China is already holding oil prices at $40 to protect their frackers and other oil producers (bloomberg). If Opec & Russia together would manage to hike the price of oil significantly this would be just a temporary success. Rising oil prices would just boost the oil production of non-Opec produces again and amplify the global oil glut.

Conclusion: The rumor makes no sense.

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