?Why Should I Cut Production??
Today’s Spotlight Market
Oil futures are lower after Saudi Arabia questioned the perceived necessity to cut production. Saudi Arabian Oil Minister Ali Al-Naimi, when questioned by reporters if the kingdom would trim its production, quipped ?Why should I cut production?? It is this attitude and Saudi Arabia’s influence that have many believing that OPEC will not cut production anytime soon, to the dismay of some member states. Coupled with the the US continuing to add production, the supply glut in Crude Oil is likely not going away anytime soon.
Fundamentals
The collapse in Oil prices has put heavy economic strain on some OPEC member nations, who have budgeted.? Venezuela has pleaded its case for a meeting ahead of the cartel?s next scheduled summit on June 5th.? Venezuela has stated that it does not believe in the free market and would like OPEC to be more proactive in supporting prices.? The motivation for the Saudis not wanting to cut production is to harm the US shale Oil business and to curb further investment.? Long-term, they view shale as a strong competitive threat.? The Saudi economy has the luxury of being able to withstand the drop in Oil prices. OPEC has reduced its 2015 demand forecast to the lowest level in a decade.? Demand for OPEC Oil is expected to drop to 28.92 million barrels per day in 2015, which is down 280,000 barrels per day from the cartel?s previous forecast.? This is 1 million barrels per day less than the cartel is currently producing.
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