Oil prices have spiked 30% in three days, and Ed Morse of Citi said that, in his opinion, the rally will be short-lived. The primary reason for his viewpoint, he says, is that that the market increase seems to be driven more by emotion than by reality.
Morse believes the market was hasty in responding to a bulletin from OPEC released Monday, which indicated that the 12-member oil cartel is ready and willing to talk to all other producers. News sources and markets read the announcement as a good sign that OPEC will finally lower oil production and stop intentionally and predatorily flooding the world market.
Nope, Morse says. Nearly all of the OPEC officials are currently on break, for one thing, and the absence of further reporting is probably an indication that Monday’s statement is unreliable. Besides, one of OPEC’s dilemmas is determining who would cut production. Saudi Arabia would be the nation most likely to cut back, probably in the fall, but the change would actually be a function of decline in internal consumption as opposed to a significant shift in strategy.
On a high note, Morse believes that any rebound in oil prices will likely benefit U.S. shale producers, who have proven resilient in the face of the decline in oil prices.
One more low note – Morse believes it could require a few years of low oil prices for swing producers to exit the market.
Oilfield families, this is one man’s opinion. Maybe the spike will stick and keep climbing. So what if it would take a miracle in the midst of our near jobless desert. We believe in those more than in iffy bulletins from oil cartels.
Info Souce: BusinessInsider.com