Last week was not kind to oil producers. Crude prices fell almost every day, for a combined 5% loss in for Brent Oil and 7% for WTI. Brent returned to sub-$40 levels, and WTI closed the week just above $36/bbl.—approaching the $33 target we forecasted in last week’s newsletter.
- The markets have been placing a lot of weight on the meeting between major oil-producing countries to discuss freezing their output. Expectations that the countries could come to an agreement was one of the main causes of the recent oil rally. However, on Friday, the Saudi deputy crown prince, blew a hole through the hopes of cash-strapped oil producers around the world. Mohammed bin Salman stated in an interview with Bloomberg that “if all other countries agree to freeze production, we’re ready” to freeze as well, but, “if there is anyone that decides to raise their production, then we will not reject any opportunity” to expand output. Iran has already refused to restrict its oil production—so the entire deal, it seems, is off the table. With inventories already high, the lack of a freeze will continue to put downward pressure on prices.
- In the same interview, Salman revealed that the Saudi government will list a small portion of the state oil company, Saudi Aramco, on the Saudi stock exchange by 2018. We reported rumors of this sale some time ago, but now it is officially confirmed. The Prince assured that less than 5% of Aramco would be sold; with the company potentially worth $2.5 trillion USD, this sale could raise over $100 billion. Salman plans to increase the size of the sovereign wealth fund to $2 trillion, and to invest in diverse industries to reduce the Saudi Arabia’s dependency on oil.
- With oil’s weakness last week, it should come as no surprise that both diesel and gasoline (in USD/gal.) fell about 4% each over that period. We are now close to 0.02$/liter before advising to hedge some of your fuel expenses.
Have a great week!
Philippe Shebib