Is OPEC Shorting Oil?

FTAlphaville: WTI is retesting $45
Also worth putting into the mix are reports (from fringe media) of Opec nations shorting the oil market directly, with the Kuwait Investment Authority and Saudi Arabia’s SWF SAMA cited specifically.

What to make of this?

Well, first, it’s not unheard of for these institutions to short. It’s also necessary to differentiate from outright shorting and curve plays, which exploit spread differentials. Going short the paper market for a producer can simply mean hedging, a.k.a selling oil forward because you can get a better price for selling tomorrow’s oil than today’s.

Selling forward AND selling physical? Well, that arguably puts a producer entity in a coordinated strategic assault position. Why? Because it naturally suppresses the contango which would otherwise emerge on the back of mass oil dumping in the spot market.

If there’s no super-contango, there’s less of an incentive for opportunists to buy and store oil in ways that balances the market and keeps shale and non opec producers in business.

Indeed, it’s only by constraining the contango effect that Opec can be sure that prices can go as low as they need to go to get rid of the competition.

No comments:

Post a Comment