While the whole financial world watches not very successful OPEC negotiations on price stabilization, the US producers do not waste time and hedge the price for the next year, BIN.UA reports.
One month ago,many experts stated that OPEC countries’ claims on the preliminary agreement on limitation of volumes of oil extraction are nothing more than a mockery, or nothing more than trivial verbal interventions. Currently such claims seem to be true. In fact, nobody wants to reduce or limit extraction, and everybody finds valid reasons for that.
For example, Iraq is lamenting that it fights the war with terrorists and it needs to extract as much as possible. Iran categorically refuses to speak of any limitation measures, before it reaches the level of extraction of 4 mln barrels per 24 hours. By the way, Saudi Arabia, which became the initiator of the last negotiations, fulfilled its task partially. It is unlikely that it happened accidentally; nevertheless the Saudis placed bonds, amounting to $18 billion at the peak of oil prices, thus ensuring the high demand and low revenues.
It should be noted that as per the general information, in 2014, Saudi Arabia started to rapidly increase volumes of extraction, in order to put out of business the independent producers with the high prime cost of extraction. It managed to fulfill this task partially, only partially.
Yes, we saw a major reduction of the number of drilling installations in the USA as well as the significant decrease of extraction. Moreover, many companies reduced investments. In particular, ConocoPhillips reported on the reduction of investments to the large projects last week.
However, it also refers to the fact that other oil companies merely do not expect for oil price to increase higher than $60 per barrel. Moreover, it is not yet a fact that next year we will not see the significant growth of extraction in the USA.
For several months, we see the virtually continuous growth of the number of drilling installations. But the main thing is not even in it, but in the fact that slate producers are not sitting and expecting for the prices to rapidly rise up: they massively hedge at current levels, which will allow them to earn profit next year, unless, of course, there will be problems with funding.
According to EIA information, the number of short positions in WTI futures, opened by oil producers and wholesale traders, is close to the record values for the last 10 years.
The number of short positions, opened by these participants, increased up to 540 ths, and this is the maximum since 2007.
It should be reminded that last year the banks toughened requirements for oil producers, expecting them to hedge the price, and only under these terms, they will agree to fund projects. However, it is also more profitable for slate producers: they sell distant contracts, which anyway cost more expensive, than front-month contracts, go to banks, show that they have the obligation of the counterparty to purchase oil from them at the fair price, obtain money and start working.
Therefore, in case of non-performance OPEC countries will remain in the losing position. If they fail to agree, the price will go down and Saudi Arabia with its colleagues will extract and sell at the low price, while US slate producers will be indifferent to oil prices drop, because they will anyway sell at already known prices.
