Comm: Precious

(Riyadh)

If there is one thing clear in the oil market, it is this: OPEC’s ploy to cut output in an effort to raise prices has failed. The cartel has twice put in place an agreement to lower overall output, but it has failed to prop up the market, as the bloc continues to be undermined by non-OPEC producers pumping ever more oil. Now OPEC has a new problem on its hands—how does it end the agreement without causing even more of a rout than is already in place? Saudi Arabia is already saying the deal will not be renewed when it ends in March 2018, but that it does not want to “shock the markets”.


FINSUM: We don’t think markets will be shocked when this deal is not renewed because the writing has been on the wall for months. It will have the effect of lowering oil prices further, however.

(New York)

When the CEO of one the world’s largest oil companies says that his new car will be an electric vehicle, one has to wonder about the future of the whole industry. That is exactly what happened this week when the CEO of Royal Dutch Shell said he was trading in is diesel for a new Mercedes electric car. The news comes at a time when oil prices continue to be low on the back of oversupply, and electric vehicle investment and sales are surging.


FINSUM: Our own view has been well-described in this publication, and we continue to stick to it—that electric vehicles and renewable energy are slowly sapping demand for oil, while all the while producers continue to pump too much to meet demand. Thus, we do not think oil prices will ever again recover to their former levels.

(Riyadh)

Anyone who thinks oil prices are headed higher is misguided. Most experts agree that the future for oil is not bright at all. While there may be short-term rallies in the near future, the long-term outlook is very bleak. This is driven by three primary factors. Firstly, US shale will keep the market oversupplied for some time to come, secondly electric vehicle demand will grow, undermining oil, and thirdly, emerging market demand will not stay as robust as it has been (solar and electric vehicles are growing there too), taking away a fundamental growth driver.


FINSUM: The writing is on the wall for oil, and in our view, even near term prices are likely to stay weak because of the competitive and over-supplied market.

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