October 25th, 2012, 7:49 pm
My opinion:The oil price is back to being controlled by OPEC. OPEC was dominant in the market in the 1970's-80's, lost market share afterwards but is back to having sufficient market share that what they say, goes. And OPEC's share is only going to rise, they have far more remaining reserves than anyone else.Most of the middle east producers have hugely increased their break-even price of oil to support their own domestic budgets. Saudi set an oil price target of $25-$28 not many years ago, now they need something like $70 to support their huge benefits giveaway, to fend off an Arab Spring.So any time oil (let's talk WTI) goes below about $70, i.e. Brent below about $90, they'll cut production. Some OPEC members will cheat (Iran, Venezuela) but enough (Saudi, UAE, Qatar, Kuwait) toe the line to make it work.Meanwhile saudi wants oil (not sure which grade, but I think they mean WTI in this case) to be below $100 to keep the world economy alive. They have sufficient spare pumping capacity to keep it there at the moment. There's been numerous statements by their oil minister saying exactly this.So Saudi and the wider OPEC is doing a good job of what they want - keeping WTI in the $70-$100 range. According to one of my models the bubble in oil when it rose to $140 in mid-2008 only exceeded fundamentals for about 1 year (on the upside) then another 9 months on the downside.
Last edited by
willsmith on October 24th, 2012, 10:00 pm, edited 1 time in total.