The price of oil ..... and what really happened

10/3/15

The price of oil ..... and what really happened

When the Saudis refused to cut oil production in the face of increased global competition and falling demand, they were plainly prepared to take a short-term haircut to achieve their goals. The extent of the fall in oil prices must have come as an unpleasant surprise. For a comprehensive examination of what happened and why, the Financial Times' Big Read (Riyadh's gamble, p.11) is a must-read. So what next? Despite both internal and external pressures, Saudi Arabia's capacity to produce oil for less than $10 a barrel and a vast war chest means that their determination should not be underestimated. (See also the FT's leader, "US makes a strategic error...." ,p.12)

Are we headed for $/Euro parity ?

The Financial Times' Analysis : Currencies (Euro's weakness, p.34) focuses on the decline in the value of the Euro as it heads towards the psychologically important level of parity with the Dollar. Even a cursory look at the comparative economic situations of the two areas would show why it's not hard to see why the traffic has been heading pretty much one way. FX traders like to quote market mantras, the one being applied to this move is "The trend is your friend". Some more cautious players might remember the one about the dangers of too many speculators being positioned in the same direction.

 Eurozone members not playing the game ?

The Financial Times' interview with ECB executive board member Benoit Coeure (Central Bank fears....., p.6) reveals his concerns that certain high-profile Eurozone members (Italy, France) are transgressing agreed fiscal rules. Those old enough to witness the inception of the Euro and the widespread fudging of fiscal requirements at that time will struggle to supress a smile that anyone should be the least bit surprised.