X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Oil prices at OPEC's mercy? - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Dec 14, 2010

    Oil prices at OPEC's mercy?

    Commodity prices are generally governed by the economic forces of demand and supply. But for crude oil prices, the dynamics of economic forces are rather superficial. For long, the oil producing nations have used the pricing of this scarce commodity to their advantage. OPEC, a cartel of twelve nations, has close to 40% share of the world's oil supply and two thirds share of its known oil reserves. The body is prompt when it comes to raising prices due to supply shortage. At times the shortage is even an artificial one. But when it comes to enhancing supply to meet excess demand, the profit centric motives take over.

    In a recent meeting aimed to decide on viable supply limits, OPEC left the quota same as before. Oil prices are now at two year high of US$ 90 a barrel. While this means more inflation in the economy and slower recovery from global recession, OPEC is fine with the current state of affairs. It has shrugged off the high prices as a 'blip' and has left the quotas on hold citing slowing demand and strong supplies. The current supply limit is in place since last two years. It was fixed when oil prices plunged from US$ 147 to US$ 33 a barrel. OPEC justified the status quo in supply citing lower demand due to potential debt crisis in Europe. This is in complete contrast to IEA's report projecting rise in demand for oil from the fast growing emerging economies. OPEC's stand makes it clear that it wants to make most of the strength in oil pricing. The cartel had earlier estimated a price range of US$ 70 to US$ 90 being 'bearable' for consumers which was changed to US$70-US$80 in the recent meeting. The 'bearable' price range is altered to suit the convenience and pockets of the oil producers. Hence the inertia in raising supplies even if the rise in crude prices erode growth for a major part of the world.

    The group has around 6 to 7 m barrels of spare capacity, but it has not changed formal supply quotas. Going further, if the supply remains fixed, oil prices will stay firm and the recovery of developed nations will be slower. For India, which imports close to 70% of crude oil, this means huge losses for oil refiners and high deficits for the government.

    In the wake of the current events, the only fact that can ease concerns is a hike in share of non OPEC oil producing nations. Oil prices could also ease if speculative investments are not made into the commodity. However, for companies that are large consumers of the commodity, hopes of better margins could remain a distant possibility.

     

     

    Equitymaster requests your view! Post a comment on "Oil prices at OPEC's mercy?". Click here!

      
     

    More Views on News

    GAIL: A Good Show (Quarterly Results Update - Detailed)

    Mar 27, 2017

    GAIL (India) Ltd has announced results for the quarter ended December 2016. reported 9.4% year on year (YoY) decline in sales, while bottom-line grew 45.4% YoY.

    ONGC: Higher Realisations on Crude Support Performance (Quarterly Results Update - Detailed)

    Mar 17, 2017

    ONGC has announced results for the quarter ended December 2016. The company has reported 9.2 % year on year (YoY) growth in sales, while bottom-line grew 197% YoY.

    Oil India Ltd: A weak quarter (Quarterly Results Update - Detailed)

    Jan 24, 2017

    Oil India Limited announced results for the quarter ended September 2016. The company has reported an 6.5% and 7.8% Year on Year (YoY) decline in sales and net profit respectively during the quarter.

    GAIL: A Robust Quarter (Quarterly Results Update - Detailed)

    Dec 3, 2016

    GAIL (India) Ltd has announced results for the quarter ended September 2016. The company has reported 16 % year on year (YoY) decline in sales, while bottom-line grew 180% YoY.

    ONGC: Lower Write-offs Support Performance (Quarterly Results Update - Detailed)

    Nov 3, 2016

    ONGC has announced results for the quarter ended September 2016. The company has reported 10.3 % year on year (YoY) decline in sales, while bottom-line grew 6.3% YoY.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE OIL & GAS


    Aug 18, 2017 (Close)

    S&P BSE OIL & GAS 5-YR ANALYSIS

    COMPARE COMPANY

    MARKET STATS