Energy: Uncertainty abounds… - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Energy: Uncertainty abounds…

Mar 9, 2001

Uncertainty seems to be omnipresent currently. Besides the volatility on the domestic bourses the world oil markets are also on tenterhooks. The Organisation of Petroleum Exporting Countries (OPEC) meet on March 16th to decide on their production policy. The OPEC had earlier cut production by 1.5 m barrels / day (mbd) in mid January, which came into effect on February 1st. This was done on the fear of that oil markets could slip into an over supply position. The current volatility could be due to the speculation on what policy the cartel will adopt in its next meeting. However, based on the comments of OPEC spokespersons, only the magnitude of the cut is in question as most members favour a production cut. Saudi (8.4 mbd) and Iran (3.8 mbd), the cartel's largest producers, have also hinted their support to a cutback in production.

The OPEC is apprehensive that as the Northern Hemisphere shifts out of the winter months (high consumption period) the demand for fuel is likely to fall. Also, the slowdown and fear of possible recession in the largest oil-consuming nation, U.S, which could pull down demand further has added to the cartel's worries. Fearing a glut in the oil markets the OPEC is attempting to create market equilibrium and consequently maintain price stability. Further, it is attempting to prevent a slide in oil prices to 1998 levels.

Oil prices recovered only in 1999 after having collapsed to 20-year lows of $10 per barrel in 1998. This adversely affected oil-producing nations, which cut back on production to revive oil prices. However, by mid 2000 oil prices were soaring and to bring some sobriety into the markets the OPEC hiked production by 3.2 mbd. U.S too released 30 m barrels of oil from the Strategic Petroleum Reserve (SPR) in the month of October to tide over the supply shortfall. The OPEC is afraid that the increased production could collapse oil prices as world oil demand weakens.

Under the OPEC pricing mechanism, prices of a basket of crude are targeted between $22 / barrel to $28 / barrel. If prices deviate from this range for 20 consecutive working days the OPEC will undertake necessary adjustments in production. As per reports, the OPEC is said to be comfortable with oil prices at $25 / barrel.

Turmoil seems to have engulfed markets and March seems to be a season of cuts. The OPEC meets on March 16th followed by the U.S Fed on March 20th for a possible rate cut. However, the cuts are an ominous sign of economic slowdown and anxiety could grip markets on a possible global recession.

Equitymaster requests your view! Post a comment on "Energy: Uncertainty abounds…". Click here!


More Views on News

GUJ. STATE PETRONET at All Time High; BSE OIL & GAS Index Up 0.5% (Market Updates)

Jun 17, 2021 | Updated on Jun 17, 2021

GUJ. STATE PETRONET share price has hit an all time high at Rs 326 (up 3.9%). The BSE OIL & GAS Index is up by 0.5%. Among the top gainers in the BSE OIL & GAS Index today are GUJ. STATE PETRONET (up 3.9%) and RELIANCE IND. (up 0.4%). The top losers include BPCL and ONGC (down 0.4%).

GAIL Misses Earnings Estimates. Company Ditches Plan to Split (Views On News)

Jun 10, 2021

GAIL's earnings and proposal to monetise pipelines through InvIT route, puts stock in focus.

ONGC Hits 52-Week High: Key Triggers that Drove the Stock This Week (Views On News)

Jun 5, 2021

ONGC stock at 52-week highs amid the recent rally in crude oil prices.

Adani Enterprises Hits New Record High. Marketcap Surpasses Rs 1.5 tn (Views On News)

Jun 2, 2021

Adani Enterprises share price is up 925.7% in one year. Can it go higher?

Here's Why Tide Water Oil Shares Are Rallying (Views On News)

Jun 2, 2021

The three reasons why Tide Water Oil shares have zoomed 1.5 times in less than a month.

More Views on News

Most Popular

Hotel Stocks Will Reward Investors (Fast Profits Daily)

Jun 8, 2021

This is why I'm bullish on the hotel and hospitality sector.

My 'Unlock' Investments (Fast Profits Daily)

Jun 11, 2021

The best unlock investments you can make in the market.

The Most Visible Sign of India's Revival is on Two Wheels (Profit Hunter)

Jun 9, 2021

Investing in the best stocks could result in wealth compounding on a massive scale.

How I Discovered a 400-Year-Old Open Secret to Extreme Wealth (Profit Hunter)

Jun 11, 2021

Charlie Munger's open secret about investing success.


India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms


Jun 17, 2021 11:48 AM