Loading ...Saudi Oil Production Cut
The Saudi 1 million bpd production cut has once again led to all the oil bulls and their shills hyperventillating about higher oil prices. It ain’t going to happen. Look at a two year chart of WTI. The last cut which seemed more like a surprise then this newer one did, caused a very oversold oil price to gap higher from it’s 50 day mvg. up to it’s 200 day at $84. It quickly came back to below the $65 area it was trading at before that previous rally started. From that double bottom area, oil has once again rallied but is still below the 50 day. So today with this so called surprise cut(no one who actually trades and follows oil is surprised as Saudi has said all along that lower prices would lead to production cuts) WTI has yet to get back above the 50 day. It might in the next few days but it is unlikely to penetrate the 200 day which is now just below $80. Despite these two rounds of production cuts, oil is weak and getting weaker. The US and much of the world are slowing and US oil production continues at strong levels. The Saudi cuts will mitigate the sharpness and speed of falling oil prices but lower prices are still coming in the months ahead.
An additional long term dynamic that hasn’t even kicked in yet. As more than half the world are joining the BRICS either directly or as affiliates there is going to be a double whammy on both oil prices and the US dollar. Once their trade funding mechanism is completely in place(only a few deals have so far been announced) they are not going to be using dollars to buy their oil. That means oil, while still being priced in dollars in world markets will no longer require as many dollars(downward dollar pressure) and as the BRIC system will probably rely on gold the expected upward price pressure in oil will not materialize. The expected wisdom was that a weaker dollar value would require higher dollar prices for oil just to balance things out. If the dollar’s share of the oil market declines because less countries are using it to purchase their oil, there is less upward pressure on the price of oil. If gold is stable or actually rising, oil prices would be stable or actually falling. A double whammy to both the dollar and global oil prices going forward. Saudia Arabia and the rest of OPEC will have their hands full just trying to slow down the coming collapse of oil prices.(Didn’t even get into the massive move away from ICE vehicles and other alternatives away from oil for energy etc.)
As for USD … you forget one major item which is that the world is indebted over their heels valued in usd. BRIC+ could decide to cancel that debt which would be a major push against USA but such would/could bring another w AR (or not). The longer I think about the possibility that BRIC+ could cancel debt valued in USD the more likely I find it. Pretty re volutionary. Such would not specifically have to cancel that debt only to be re-valued in a (new) BRIC+ currency. And even such would be Pretty re volutionary.
Good point. Not sure if you are saying that hurts or helps the dollar? First, while the BRICS(if they are debtors) might default(cancel) the debt it might be in their interest to continue to service it in depreciating dollar payments while conducting all new borrowing and purchasing in their new currency. Either way it just means a viscious cycle where the dollar represents a smaller share of global usage.