Want to share an article as well as some of my previous thoughts on how oil market will play out. The following article is largely consistent with my thought, although I disgree with the conclusion. the question is how to trade it.
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At the current output level, Saudi fiscal spending needs >$90 oil to break even. Each day oil is
At the current output level, Saudi fiscal spending needs >$90 oil to break even. Each day oil is
It is a game of chicken as in the case of SNB. Saudi does have huge foreign reserve to sustain low price, yet it is not a country of great geopolitical influence. You never know whether it will yield at some point.
However it feels like Saudi and other Arab countries are determined in this round keep the price sustained at this low level for a lengthy period to kill, at least deter entrance, of the emerging US/Canada/Russian/other higher cost production.
Exactly how long and how high can it rebound? If my story makes senses, it paints a picture for how oil will bottom: it will NOT bottom until significant cut in production for higher cost production kicks in. You need to see lots of layoff and closed shops before price bounces. After that OPEC countries will produce enough to keep the price below cost of production for higher cost producers.
just my 2c
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