Get Your Act Together, Saudi


We know for certain that if production of oil from OPEC exceeds the market demand, price will fall, for sure.

If overproduction results in an increase of inventories, that is a good warning signal for any major oil producing nation. An even better signal that things are starting to go wrong (if you favor a high and stable price of oil) is when the futures curve moves towards contango or deepens its state of contango (see attached chart). Currently oil producers are more or less giving away sure carry trade profits to ever ready carry traders in the market. The response from the warning signals to actual proven remedy simply takes too long time. Today we are witnessing, once again, how OPEC with their de facto leader Saudi Arabia drag their feet in a price rescue operation they know is way overdue. It did not take oil producers long time to increase production at eighty dollar. Greed is a strong motivator and management to control an over supplied market does not seem to exist in the same way.

The message is clear. Producers did blink and increased production. It felt good at eighty dollars, not so sweet twenty dollars later. Saudi Arabia and others get your act together and do not blink so easily the next time!

Hans Berglund, CIO
ProxyPetroleum Energy

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