Thursday, February 18, 2016

Oil: Opec - Eating The Cake And Still Keeping It?

(Drivebycuriosity) - It looks like that Opec wants to eat the cake and still keeping it. For months we have been hearing that Opec, especially the leader Saudi Arabia, wants to lower the price of oil to squeeze out the new competitors, the American oil producers. We also heard that many US frackers are already losing money because the oil price is too low and doesn´t cover their costs anymore. it seemed that is is just a matter of time that many frackers will got out of business and US oil production will shrink significantly.

But now we hear a new strategy. Apparently Opec members, including Saudi Arabia, and non-Opec producer Russia had agreed to curb production in order to raise the price of oil again. It seem they are trying to have their cake and eat it (wikipedia).

Opec cannot have it both - a shrinking US oil production and a rising oil price. If the current oil price rally continues it would work like a rescue mission for the frackers. The remaining US frackers will keep on pumping and those who had stopped pumping will produce again.

A rising oil prices will reduce their losses and even bring more profits. As a result the US oil production will climb again, aggravating the global oil glut - and a new oil collapse will be in the making.

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