Here we go again.
Like a year ago, crude oil futures are tumbling again Tuesday as hopes for a cut in output from the Organization of Petroleum Exporting Countries (OPEC) fade due to entrenched differences between its most important members.
The benchmark contract for U.S. crude was down 3.9% at $45.27 a barrel, after Reuters reported that Iran and Iraq-two countries who are ramping up production after years of politically-induced disruptions-are resisting pressure from Saudi Arabia to rein it in.
Analysts have warned that the global glut that drove prices to nine-year lows earlier this year could stretch well into next year if OPEC fails to deliver a cut, after raising expectations in recent weeks. And time is now running out. Ministers from the cartel's members are due to meet in Vienna Wednesday and the positions are still far apart. Saudi Arabia's oil minister, usually the decisive voice at OPEC meetings, isn't even due to fly in until later Tuesday evening, according to Reuters.
The implications for the U.S. economy could be far-reaching. The shale boom that has made the U.S. much less dependent on imported oil is a major driver of local economies from Texas to North Dakota. The recovery in oil prices from a low of $27 a barrel in the first quarter has spurred a revival in drilling and associated services in recent months, which has lifted the broader economy. On Monday, the Federal Reserve Bank of Dallas reported that its gauge of general business activity returned to signaling expansion for the first time in nearly two years in November.
Of course, the markets for oil and refined products are always volatile ahead of OPEC's ministerial meetings whenever there is a chance of a change in output levels. The cartel satisfies one-third of world oil demand, and therefore should have the ability to control, or at least nudge, prices.
But getting members to agree to a cut, or a certain policy, hasn't been easy, particularly recently. Each country would have to sacrifice possible revenue (and most OPEC members have no other meaningful source of government revenue) at a time when low oil prices means revenue has been tight. What's more, those sacrifices are even more difficult to agree to when non-OPEC members, such as the U.S. and Russia (the world's biggest oil producer) end up by default among the beneficiaries of higher prices.
Prime example: Despite some honeyed words from Vladimir Putin about joining efforts to limit supply, Russia pumped a post-Soviet high of 11.2 million barrels a day on average in October, an increase of nearly 4% from a year earlier. OPEC, and Saudi Arabia in particular, wants Russia to share some of the pain of cutting. Hopes that it would agree had risen briefly over the weekend as ministers from OPEC members Algeria and Venezuela flew to Moscow to press the case, but they returned empty-handed on Monday.
If Russia listens to anyone in OPEC, it is not the hard-pressed Algerians and Venezuelans (much as it values Venezuela's anti-American geopolitical stance), but rather Iran, a major buyer of Russian nuclear technology and conventional military hardware, and its strategic ally in Syria, where both countries back the regime of Bashar al-Assad.
And Iran is not looking to cut. Bloomberg reported Monday that it is sticking to its demand to raise output to 3.975 million barrels a day, roughly the level it was producing before the 2008 crisis. But that is 50,000 barrels a day above what it claims to have produced in October (official figures may be slightly inflated, to create more leeway for 'cuts')
The revival of Iran's lost share in the oil market is the national will and demand of Iranian people, Iranian news agency Shana quoted the country's oil minister Bijan Zanganeh, who was due to arrive in Vienna later on Tuesday, as saying.
Iraq has also been pressing for higher output limits, saying it needs more money to fight the militant group Islamic State.
With neither of its two biggest rivals willing to back down, Saudi Arabia had threatened at the weekend to revert to all-out price war.
Morgan Stanley and Macquarie, for two, have said oil prices will correct sharply if OPEC fails to reach a deal, potentially going as low as $35.
Back down we go.
No Personal Opinion Required
When stock prices surge during what feels like an unusually uncertain environment, it’s tempting to proclaim the market is peaking and then bail out. Unfortunately, trading like this can be a money-losing exercise.
Why it’s a mistake to trade on what you "personally" believe is a market top:
It’s incredibly difficult to accurately time the top. Some of the best gains to be had in the market occur during the months before the market tops:
It is vitally important to have a fully automated, unemotional, mechanical system to capture those rising markets and protecting your portfolio from substantial declines . . . as close to the top and mechanically possible.
Most people watch their accounts decline up to 60% using the "Buy, Hold, & Pray" strategy if they have a paid adviser or broker. Another widespread outcome is that they "Panic-sell" because they have nothing but the news to listen to, or maybe a friend, and they act emotionally. In either case, they are likely paying higher fees than necessary, leaving gains on the table, and getting out too late.
The chart below illustrates this:
When stock prices surge, as they have recently, during what feels like an unusually uncertain environment, it’s tempting to proclaim the market is peaking and then bail out.
Investors aged 50+ pay the price for advisors who just tell them to hang in there. Why? Because sustaining a 50% decline requires 100% gain to get back to even (not including new contributions). In addition, it can take between 5 and 7 years just to get back to even!
Avoiding this at all costs and allowing the InterAnalysts Wealth Preserver Arrows to dictate your entry and exit points is vitally important to remaining in the top 5% of investment performances.
Follow the red and green arrows in the Wealth Preserver. That is all you have to do.
"The story of the Pilgrims begins in the early part of the seventeenth century. . .
The Church of England under King James I was persecuting anyone and everyone who did not recognize its absolute civil and spiritual authority.
Those who challenged ecclesiastical authority and those who believed strongly in freedom of worship were hunted down, imprisoned, and sometimes executed for their [religious] beliefs," in 1600, England, the 17th Century.
Member Login Hi, (First Name) | Log Out
Livio S. Nespoli has been a broker, registered investment advisor, and financial publisher since 1985.