Long way towards oil market’s balance - Forex analyst
Baku, Azerbaijan March 3
By Elena Kosolapova - Trend:
It would take a long way towards oil market's supply-and-demand balance despite the agreement reached by several countries on freezing oil production level, Forex Trading Instructor and analyst for DailyFX portal Tyler Yell told Trend.
Earlier, the energy ministers of Russia, Saudi Arabia, Venezuela and Qatar agreed to freeze the oil output at Jan.11 level. Later, Russia's Energy Minister Alexander Novak said that over 15 countries have joined this initiative.
Yell went on to add that the issue some people will have is that production is being capped at near record levels, storage facilities getting closer to max capacity, and therefore the demand will need to pick up for a balance of oil supply and demand.
The analyst also noted that controlling the fulfillment of a production cap will be much more difficult and it has been seen in past times, where these "gentlemen's agreements" were not honored.
"That is presumably why it's taking so long to get to this point in the first place. It's been said that we only change when the pain of change is less than the pain to stay the same, and we may have reached that point," Yell said.
Yell noted that Capital Expenditure is desperately needed for large demand of oil.
Credit markets are tight now, which means that it is difficult to get the money to build large oil demanding projects, he said.
Yell said that the recent trend is that central banks turning to their respective governments to request fiscal policy reform that would turn a focus to government-led growth (a la China in 2007-2013).
"Such a move where government growth picked up alongside with CapEx from large companies would increase the demand for oil, and could help to increase the price of oil," he said.
He also noted that the economic data in the US is starting to firm up since early February, which could mean that demand may start to eat into the over-supply currently in the market.
However, if oil prices do rebound, it will be important that oil produce remains limited to further support the entire market, and not just the cheapest producers, Yell said.
The price of May futures for Brent oil was $36.95 per barrel on March 3 morning. Meanwhile, the price of April futures for WTI oil was $34.74 per barrel.
Edited by SI
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