FX FUNDAMENTAL ANALYSIS
provides 31% of OPEC production and 12,5% of global production . Te current policy is to expand market share by driving out competitors who are unable to survive a low price environment. Saudi Arabia is intent on maintaining the current oil pr o du c t i on quota, in order to gain market share.
Iran has only r e c e n t l y returned to the market having been under Western sa nct io n s . Under such c o nst r a in ts , the country saw a dramatic decline in oil exports. Now free
to
and earlier this year an Iranian Shia Cleric
was executed in
the Kingdom. The odds of Iran and Saudi Arabia coordinating production levels to support the market are slim to none.
market move higher, however the production freeze agreement is a temporary solution that does not fix the oversupply problem. The Russian budget is calculated using the Urals oil benchmark (Russia’s’ oil export blend). Ural’s oil is of a lower grade than the international b e nch m a r k s, Brent Crude (Brent) and West Texas I n te rme d i a te (WTI). As a result, Urals oil a
trades at discount
(lower price). An immediate reversion of the current OPEC policy is required to fill the trade deficit.
deal with old cu s t o me rs, the intention is to increase production . This has
Regardless if the oil prices rise or fall, U.S. producers will profit
added to
the supply glut and helped push the oil price lower. Iran will not condone a production cut that is detrimental to the countries’ objectives of gaining market share. Aside from market share gains, the Old Guard in Tehran have a strained relationship with the House of Saud in Riyadh. The two countries are fighting proxy wars across as the Middle East
28 FX TRADER MAGAZINE April - June 2016
With an economy in recession and a shrinking budget, the Russians are desperate for a fix to the supply glut. The oil minister, Aleksander Novak, has
spent much of
year in the Middle East coercing Iran
and OPEC members that a
production freeze will stabilise the oil market. OPEC and non- OPEC productions agreed to maintain production at January 2016 levels. This has helped the oil
The United States shale producers have disrupted the
OPEC status quo and helped push the oil price to multi-decade lows. Technological innovations
have the
given these producers the ability to regulate production at a faster rate than OPEC and other non- OPEC producers, making them adaptable to any price environment. However, even these operators are not profitable below the $40 level. Yet, they can survive due to the nature of the oil partnerships in the
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