Saudi Sees Oil Prices At $60 As Good Level To Encourage Investment

Commodity Tips | Saudi Sees Oil Prices At $60As Good Level To Encourage Investment:-

Saudi Arabia wants crude oil prices to rise to around $60 a barrel this year, five sources from OPEC countries and the oil industry said. This is the level the OPEC heavyweight and its Gulf allies - the United Arab Emirates, Kuwait and Qatar - believe would encourage investment in new fields but not lead to a jump in US shale output, the sources said. The Organization of the Petroleum Exporting Countries, Russia and other producers pledged last year to cut production by about 1.8 million barrels per day (bpd) from January 1. The first cut in eight years is intended to boost prices and get rid of a supply glut. Crude prices have risen by more than 14 per cent since the November pact but are still only trading around $56 a barrel despite record compliance by OPEC and non-OPEC members. OPEC officials have repeatedly said the group does not target a specific oil price and their focus is on drawing global oil inventories and helping the market to re-balance. But behind closed doors, Riyadh and its Gulf OPEC allies hope to see a higher level because the low price has pressured their finances and stoked fears of a future supply shortage. However, they do not want the price to be so high that it encourages rival US shale producers, which were hard hit by the slump in oil prices, to ramp up production again. Advances in technology have made it easier for them to adapt quickly to oil price fluctuations. “They (the Saudis) want to see oil prices at $60 towards the end of this year. It's good for (oil) investments,” said a Gulfoil industry source familiar with the matter. Another non-Gulf industry source said: “OPEC and particularly the Saudis want higher prices” not just for investment but also because Riyadh seeks to offload a stake in state-owned oil giant Saudi Aramco. Over $1 trillion worth of oil projects have been canceled or delayed since mid-2014. A decline in investments in future oil projects triggered worries that this could lead to a supply shortage and spike in oil prices. Oil fields take around four years to develop before production can start whereas US shale oil can now be extracted within a few months of a decision. “In general, something around $60 this year is good. $60 will not encourage that big increase in shale,” said one OPECsource, adding that shale oil production is expected to grow by about 300,000 bpd this year.

ABSORBING SHALE

US shale producers started to grow production again when crude prices first topped $50 a barrel in May 2016 after a two-year price slump due to a global glut starting in mid 2014.

US drillers have added more than 280 oil rigs since the end of May, and the US Energy Information Administration (EIA) has forecast that US domestic production will rise by 430,000 bpd between December 2016 and December 2017. Despite the advances in technology, another OPEC source said that shale producers who survived the downturn may be cautious about responding quickly to a change in oil prices. A third OPEC source said it was difficult to see oil prices rising to $60 or above this year due to a lingering oversupply. That source also said that even if shale oil production rose by more than 300,000 bpd the market could absorb it if it comes during the cold winter season when demand peaks. “The catch is the timing. If this happened, as it is widely projected, during the fourth quarter, the impact will be manageable and could be absorbed by the market,” the source said. OPEC could extend its oil supply-reduction pact with non-members or even apply deeper cuts from July if global crude inventories fail to drop to a targeted level, OPEC sources have told Reuters. The Gulf industry source said OPEC and non-OPEC members may extend the supply curb pact because a return to a pump-at-will oil policy would crash prices and destabilize markets again.

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Trump Speech to Highlight a Busy Week for Markets

COMMODITY TIPS | TRUMP SPEECHTO HIGHLIGHT A BUSY WEEK FOR MARKETS:-

  - This week’s economic calendar is loaded; but the headline of the week will likely be the Speech from President Donald Trump to both houses of Congress, held on Tuesday night.

- Despite the continued run in stock prices, bonds are not indicating that all is well with the ‘reflation trade.’ The U.S. Dollar remains relatively-weak despite the Fed’s increase in hawkishness. Below, we look at three of the more pertinent market themes for traders to follow this week.

Last week’s economic calendar was relatively light, but that didn’t keep key markets like the U.S. Dollar from putting in some interesting moves, all the while stocks continued to run up to even higher all-time highs. And while the feel-good euphoria appears to be setting in throughout many pockets of the equity market, this week’s calendar picks up considerably – with one huge event that will likely denominate everything else on the docket; and that’s President Trump’s speech to both houses of Congress, set for Tuesday evening. 
 The rest of this week’s calendar remains robust with high-impact announcements on each day. One notable exception is the lack of Non-Farm Payrolls; normally held on the first Friday of every month. Non-Farm Payrolls for February will be released the following Friday, March the 10th, and this is probably a good thing considering how loaded this week’s calendar is. Below we look at just the high-impact 
announcements  and below that, we look at three of the more interesting themes to be answered by this week’s data:

 Dollar Disconnect

The past two weeks have seen some slightly-hawkish clues from the Fed; first with Chair Yellen’s Humphrey-Hawkins testimony and then again last week with the release of the Fed minutes. When the Fed hiked rates in December, they said that they were looking at a full three rate hikes in 2017. Markets never really ‘bought’ that idea, though, and as we’ve worked deeper into the New Year, the combination of commentary from the Trump administration combined with the recent historical patterns of a very passive Fed have kept equity markets flying high while the U.S. Dollar has been unable to continue that brisk up-trend that started on the night of the election.


To read more about this, please check out Ilya Spivak’s weekly forecast on the U.S. Dollar entitled, U.S. Dollar May Struggle as Trump Speech Overshadows Hawkish Fed. 

Chart prepared by James Stanley

Stock Prices – Vulnerable on the Road to Infinity and Beyond?
U.S. Equities have become the honey badger. Regardless of the risk factors that appear to be showing in the backdrop, or the Federal Reserve threatening near-term interest rate hikes, equity prices just continue marching-higher, not caring about downside or detriment. Sure, valuations are still expensive. But just as we saw in 1999, valuations can get even more stretched as excitement drives traders’ behavior. The excitement in this most recent iteration of gains appears to emanate from the one-two combo of a passive Fed and the hopes for fiscal stimulus (tax cuts). But the Fed has been trying to transmit more-hawkishness to markets; that much has been obvious, and betting on robust fiscal policy expansion just yet may prove a bit aggressive.
Regardless, we’ll likely see this theme come to light during President Trump’s speech. If the President prioritizes and places emphasis on tax cuts and removal of regulations, equities could get another shot-in-the-arm. However, if the focus is on immigration, trade policy and border control, we may see a bit of softness in equities. This doesn’t mean a full-on reversal, but given the feel-good euphoria that’s driven equity prices to even higher all-time-highs, any change in the backdrop could produce a pullback.
To read more about this theme, please check out Paul Robinsons weekly forecast for Equities entitled, S&P 500, DAX & FTSE 100 Could be Under Pressure This Coming Week.
Are directional changes in store for Euro, Yen?
While the above two US-centric themes carry global connotations, they certainly aren’t the only market items of importance for the week ahead. We get a series of European data points that could further contribute to a top-side move in the Euro, and this is an area where we’re beginning to see pre-election jitters begin to show ahead of what’s looking to be a critical election-cycle in France; and in Japan we’re going to see the release of a very important inflationary print. Below, we take a look at USD/JPY working with a very interesting long-term zone of support, and if you’d like to read more on either of these themes, please click on the relevant link below for the Daily FX Trading Forecast for that specific market.
To read more about Euro please check out Chris Vecchio’s piece from the weekly forecast entitled, Euro Increasingly Driven by French Elections, February CPI due on Thursday.
To read more about Yen please navigate to the weekly forecast entitled, Kuroda Stokes Bullish Motivation in the Yen; CPI on deck.

Chart prepared by James Stanley
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