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COMMODITIES

$30 Oil in Six Months

U.S. shale producers cannot lose

$30, Oil, Six Months, Commodities, U.S. shale, producers, cannot lose, fx trader, forex

This year U.S. shale producers are prepared to increase production at $40 a barrel and use short positions to profit when the price falls to $30.

The price of oil has been steadily rising this year as speculators  bet that a meeting next month in Doha between the Organisation of Petroleum Exporting Countries (OPEC) and oil producing nations outside of OPEC will cut oil production. The oil market is currently oversupplied and a cut in production will balance supply and demand. Despite the anticipation, it is unlikely that there will be a production cut agreement. A change in policy requires Saudi Arabia, Iran, Russia and the United States to act in unison. Each of these countries are currently working against each other with no intention of changing course.

Saudi Arabia is the de facto leader of OPEC and has the final word on all policy implementation. The Kingdom depends upon oil revenue to sustain economic growth. Government institutions and public spending initiatives are predominantly financed by oil exports. Instead of cutting production to increase the oil price and revenue, the country has reduced public spending and sought international loans to prop up the economy. The oil rich nation provides 31% of OPEC production and 12,5% of global production. The current policy is to expand market share by driving out competitors who are unable to survive a low price environment. Saudi Arabia is intent on maintaining the current oil production quota, in order to gain market share.   

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