Monthly Archives: February 2016

#Crude #Oil Production Freeze and #Price #Risk

As denoted in the previous post there seems no important impact on price of oil evenwith the contingency clause of Iran participation. The freeze takes back oil production at peak January levels and this decision hits the ball in the Iranian field by giving the role of regulator while his market come back is in its infancy (already shipping in Europe & started in Greece).

IRAN production.png

The market didn’t reacted upwards and most people claim the contingency clause (regarding to other producers participation in the scheme).BrentCrude1.png

As Market Efficiency hypothesis imply that the current price is the best forecast, thus I believe that there will be no significant change in the market. As you can see in the graph below at the end only volatility increased and price fluctuates within the risk bandwidth:


Oil market volatility closed in January up to 70% the highest since 2009.
If you take also into account, from the Market Dynamics point of view, that the current high inventory level is an important determinant, than you understand the significant time lag needed for a stop in oil accumulation and inventory absorption before any price “correction” (consider also that inventory cannot depleted at current low price levels).

Oil Inventory.png

Moreover, the forward curve structure also remains in contango with the same basis risk which further indicates the importance of inventories:

Oil Forward Curve.png

Thus from fundamentals and technical analysis point of view there seems no significant impact on the short term (Russian companies can remain in positive FcF territory even for prices ~30$/bbl givethRubbllosivalue). ThroloAsianChinwhicarthmaibackufoEuropeaanUdemandecreaseOcourseforexandespecially/bblgiventheRubblelostinvalue).IfullyagreewiththeroleofAsiaandChinawhicharethemainbackupforEuropeanandUSdemanddecrease.Ofcourseforexandespeciallyis very significant as well as taxes (Russia needs higher prices to breakeven loss in budget revenues), but its more of a game story since US exports compete for market share and sustained low price strategy of OPEC seem to have results since Moody’s already downgraded many companies (175 on watch). For Europe a price increase in Oil will be of benefit in terms of Monetary policy and regarding deflationary pressures:

Inflation Expectations.png

inflation forecasts.png

On the Long Term many companies are already distressed and started to be in divestment territory definitely there will be a return to its LT average thus a price increase to levels higher than the 40$/bbl.


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Saudi & Russia Ministers Freeze #Crude #Oil production at ~21 mbpd

Energy Ministers decided to freeze production at January levels in order to control the oversupply, an attempt to control-stabilize the price. Remains to see whether this movement will break even with Iran supply policy or change the current trend. The effect on the market currently is an increased volatility and not a trend change on price.


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Investors in Britain in >6%prob of #Risk due to #Brexit #Greece

Most Greeks invested their money due to Grexit in Britain and now face further risks due to Brexit. The probability is more than 6% devaluation risk in -S-FOREX. A Brexit case weight up to 30% probability and will add more than 20% devaluation probability in Sterling which is further correlated by an estimated  10% impact on Equities. Greeks who put their money in Britain must certainly take account of this risk and preposition their investments

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