Oil Fundamental Forecast – September 13, 2016

Crude Oil is down another 66 cents to today to 45.22 and Brent Oil is trading at 47.48 well below the expected $50 level as the weekly rig count showed a climb in oil rigs as reported late on Friday by Baker Hughes. US production reports last week showed a steady climb in output, while Russia is also pumping record amounts of the black gold.

Headlines declaring oil production freezes and even production cuts have been tossed around so much lately, traders, pundits and major producers that it’s hard to keep up with who said what, and which comments to take seriously. Against the backdrop of all of this conjecture is a more than two-year long global oil supply glut and price drop that has set the oil industry back on its heels. Lay-offs, bankruptcies and a general souring of the industry has become a “new normal,” but prices have done anything but find a “new normal.”

Down from $114 a barrel in the summer of 2014, prices are bouncing around the mid to upper $40s range, with little reason to think that they will find a floor – which brings us to OPEC de facto leader Saudi Arabia and Russia, the world’s top two oil producers.

Ahead of an informal meeting of producers later this month in Algiers, the two oil producing juggernauts agreed a few days ago to “agree” to do something about oil markets, possibly in hopes that rhetoric could help restore market equilibrium.

The Saudis and Russians are both at all-time production highs, agreeing not to raise supply further is a relatively low-cost policy.  The bigger question is whether this indicates that a) the Russians might undertake closer cooperation with OPEC and b) the Saudis’ intentions regarding the sustainable price level is changing.  The latter would be much more important for the behavior of oil prices over the next two-three years, but ultimately, the cost of shale oil production combined with upstream policies in Iran, Iraq and Venezuela, will determine the price—and probably prevent any serious increase.

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Upcoming Economic Events that you should be monitoring:

 September 13, 2016

Government Bond Auctions

Date Time Country Auction

Sep 13 11:00 Netherlands Eur 2-3bn 0% Jan 2022 DSL

Sep 13 11:10 Italy Holds bond auction

Sep 14 11:05 Norway Holds bond auction

Sep 14 11:30 UK 0.125% 2046 I/L Gilt

Sep 14 11:30 Germany Eur 1bn 2.5% Jul 2044 Bund

Sep 15 10:30 Spain Holds bond auction

Sep 15 11:03 Sweden Holds I/L bond auction

Sep 15 11:50 France Holds bond auction