Comm: Precious

(Riyadh)

The oil market is closing in on an almost three-year run of bad news. Oil originally fell because of over-supply to the market, and that theme—despite OPEC’s cuts—has persisted for years, with US shale more than accounting for OPEC’s cuts and keeping the market flooded. Electric cars are slowly sapping oil demand as well, and now a government-driven trend will deliver another blow. That gut punch will be the rising trend of governments banning the use of gasoline and diesel vehicles in some locations. For instance, the UK and France have already passed sweeping rules aiming to phase out all fossil fuel based cars.


FINSUM: Oil continues to receive more and more bad news and our view, which we have maintained for some time, is that prices will likely never regain their former glory (or at least not until oil becomes a niche product long in the future).

(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.

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