Breaking News

Blame It On OPEP

By Archer Consulting (Arnaldo Luiz Correa)CommoditiesDec 01, 2014 07:13AM ET
Blame It On OPEP
By Archer Consulting (Arnaldo Luiz Correa)   |  Dec 01, 2014 07:13AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

In a recent past, the conflicts which take place in the Middle East would be more than enough to trigger an oil supply shock and prices would rise to the point of putting in check the growth of the major world economies. It was like that in the 1970’s. There is no way to forget, for example, the oil embargo during the Yom Kippur War, when Egypt and Syria attacked Israel, which brought about the price tripling of the oil barrel, in October 1973. Then, in 1979, the Iranian revolution which got Shah Reza Pahlevi ousted and turned Iran into a Theocratic Republic, ending up in the war between this country and Iraq and doubling the barrel price at the time.

The Gulf War in 1990, along with a series of oil production cuts by the producing countries in 1998, weren’t enough to recover the price spikes which occurred in the 1980’s and were only good to increase the then historically low barrel prices (close to 11-12 dollar a barrel) to 30 something dollars. After the 9-11 Terror, the prices jumped from 25 to 60 dollars a barrel and just about stayed on this level up until early 2007. Then China came into the picture with its vigorous growth.

The two-digit economic growth led by it (China) and its southern neighbor – India – for a decade drove up the energy consumption and commodities in general. Oil followed this upward course and the world believed that the oil barrel would reach US$ 230, as late Lehman Brothers used to say. At that time, there was already talk about a possible shortage of fuel and the need to look for renewable energy. The renowned newspaper The Economist even published two cover stories referring to the oil great high: one said the world was watching “the end of the cheap food”; the other issue showed the oil barrel at 135 dollars a barrel as a “recoil”. That’s where the sugar-alcohol sector comes into play believing in another silliness of Lula’s about Brazil becoming ethanol Saudi Arabia. Well, everybody is fed up with hearing about this story.

With oil under 70 dollars a barrel, now there is another issue. Iran, for instance, in order to meet the social and budgetary demands of the country needs almost 140 dollars a barrel. Venezuela and Nigeria need oil at 120 dollars a barrel. Czar Putin’s Russia demands 100 dollars. Saudi Arabia demands a little over 90 dollars. That is, except for the United States which is witnessing an economic recovery and oil production growth by more than 11% being the world’s greatest producer today, everybody is in a dramatic situation. The Brazilian pre-salt, discovery which made Lula turn his back on the sector and blew those who invested their time, sweat and blood off, needs oil to stay over 70 dollars a barrel so it can be economically viable.

The problem now is with the United States which is the greatest producer, importer and consumer of oil. It is producing 1-2 million barrels of oil over what they used to produce last year. And the world economy is shrinking. There will have to be a shock, that is, oil price will need to fall until oil production becomes viable in other producing countries so that the price curve can be brought back to a balance again.

And now, the one-million-dollar question: what is this level? We should also remember that in lots of the producing countries energy price is heavily subsidized. With a plummeting oil price, the social cost will be enormous. Just to name the first ones: Venezuela, Saudi Arabia, Iran and Iraq.

This is a catastrophe. Petrobras (NYSE:PZE) in the mud, losing money on account of the subsidy it gives to gas consumers and whose lag is at about 10% today, still has to pick up the pieces spread around by the scandals sponsored by the crooks who took over the company, is going through a period of heavy clouds and mistrust from investors and financers abroad.

That is why the sugar market in NY closed at an almost 3.5% fall this Friday, nailing 15.56 cents per pound for March/2015. This is a 12-dollar-fall per ton over the week. Along the three-year-long curve presented by Sugar in NY, the falls have ranged between 8 and 13 dollars per ton.

It is worth reminding you what was said here last week: “Brought to present value by BC interest rates, a fixation for March 2016 (the end of the 2015/2016 harvest) is still over R$1,000 per ton. This looks like a good fixation option for the mills since any spasm that there might be on the sugar market in NY for fundamentalist reasons will affect much more the months with shorter maturity than those with longer maturity”.

As an experienced trader on the market would say, “risk management is not everything but 100% is”.

Blame It On OPEP
Blame It On OPEP

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email