Signs are finally emerging that energy prices are stabilizing, and we believe that the collapse we have seen over the last few weeks represents a good opportunity to implement hedges on a portion of your fuel consumption. Of course we recommend adopting a gradual approach, which offers our clients the flexibility of securing supplies at attractive prices while still being able to profit from any further drops in prices.
- We were intrigued by what we learned in our latest discussions with our trading team in Calgary. Apparently few oil producers anticipated the recent drop in prices. In July 2014, when crude oil was trading at just over $100 per barrel, many of the main Canadian producers delayed implementing hedges as they expected prices to rise above $110 per barrel. Apparently few stakeholders foresaw the corrections of the last few months.
- The drop in OPEC members' demand forecast is being felt, as a growing number of analysts now expect that the cartel will trim its production levels. OPEC is well aware that production cuts will support prices and significantly increase revenues for its member countries. If oil were to trade at under $80 per barrel for a year, the fiscal impact for the cartel would be disastrous. At the current price, only Kuwait, Qatar and the United Arab Emirates are able to balance their budgets.
- The impact of the price correction is also being felt in the U.S., where the number of working oil drills dropped 1% over the week. Less drilling will inevitably affect U.S. production levels, and additional drops in drilling are expected in the coming weeks. The next meeting of the member countries of OPEC is scheduled for November 27. Have a good week!
Emmanuel Tessier-Fleury