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Home / Futures Blog / Turner’s Take Weekly – OPEC

Turner’s Take Weekly – OPEC

November 28, 2014 by Craig Turner

This is a sample entry from Craig Turner’s email newsletter, Turner’s Take Weekly, published on November 28, 2014.


OPEC

The widely anticipated OPEC meeting was yesterday and the cartel opted to not cut production. Here is a story on the meeting from CNBC: http://www.cnbc.com/id/102222286. Crude Oil is down about $4.00 from Wednesday’s close and trading under $70. When was the last time you saw crude at $69?

January Crude Oil

jan-crude

This OPEC meeting was probably the most anticipated and watched in years. Bulls were arguing OPEC needs to cut production to send prices higher. The problem with that view is that if OPEC cuts, it is really Saudi Arabia that is cutting production, and the other OPEC nations still produce their quota. Saudi Arabia is the largest producer in OPEC and with crude down so much, they want everyone to cut, not just them. Another issue is non-OPEC nations like Russia can step in and fill the void OPEC leaves and gain market share.

There were a few reports last week about Saudi Arabia meeting with Russia ahead of the OPEC meeting. No one really knows what the agenda was and what they may or may not have come to terms on, but I have a few thoughts:

  1. The fact that Saudi Arabia is having closed door negotiations with Russia just shows how badly US/Saudi Arabia relations have been damaged.
  2. It only makes sense (in my opinion) if Russia and Saudi Arabia both cut production. They are both huge producers of crude oil and if they are not on the same page, supply cuts to support pricing does not make sense.
  3. Even if you keep oil prices high, that just incentivizes private companies (like those in the US and other developed nations) to develop innovative ways to find more oil. We are seeing that now in the Shale Revolution.
  4. If crude is at $60 the nations like Saudi Arabia and Russia have a competitive price advantage for crude due to their lower cost of production.
  5. Lower Crude Oil prices slow the exploration and production of crude in the US, allowing nations with lower cost of production more market share.
  6. Don’t forget the rising tensions between Saudi Arabia (Sunni) and Iran (Shia) is a major cause of the issues we see in the Middle East. A drop in prices (and therefor revenue) hurts Iran more than Saudi Arabia.

STRATEGIES USING COMBINATIONS OF POSITIONS, SUCH AS SPREAD AND STRADDLE POSITIONS MAY BE AS RISKY AS TAKING A SIMPLE LONG OR SHORT POSITION.

We are bear spread Jan vs April Crude Oil from $0.00 and I think this spread could trade to -$1.00 to -$2.00 depending on the trading environment. For now we hold. I think the market is just trying to sort out where the flat priced futures should trade. I think next week the market turns its attention to the market structure and sends this spread lower as the trade will expect the crude oil market to be adequately supplied.

Jan Vs April Crude

jan-april-crude

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Risk Disclosure

STRATEGIES USING COMBINATIONS OF POSITIONS, SUCH AS SPREAD AND STRADDLE POSITIONS MAY BE AS RISKY AS TAKING A SIMPLE LONG OR SHORT POSITION.

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

Filed Under: Turner's Take

About Craig Turner

Craig Turner is a Senior Broker at Daniels Trading, author of Turner’s Take newsletter, and a Contributing Editor for Grain Analyst. Craig is often quoted in the Wall Street Journal, Reuters, Dow Jones Newswire, Corn & Soybean Digest, and also makes appearances on SiriusXM – Rural Radio Channel 80 providing commentary for the Grain and Livestock markets. Craig has also been featured in FutureSource’s Fast Break series, Futures Magazine Online, and INO.com. Mr. Turner has a Bachelors from the Rensselaer Polytechnic Institute (RPI) where he graduated with honors and has worked at the NYSE and Goldman Sachs. While at Goldman, Craig earned his MBA in the NYU Stern executive program. Learn more about Craig Turner.

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Risk Disclosure

This material is conveyed as a solicitation for entering into a derivatives transaction.

This material has been prepared by a Daniels Trading broker who provides research market commentary and trade recommendations as part of his or her solicitation for accounts and solicitation for trades; however, Daniels Trading does not maintain a research department as defined in CFTC Rule 1.71. Daniels Trading, its principals, brokers and employees may trade in derivatives for their own accounts or for the accounts of others. Due to various factors (such as risk tolerance, margin requirements, trading objectives, short term vs. long term strategies, technical vs. fundamental market analysis, and other factors) such trading may result in the initiation or liquidation of positions that are different from or contrary to the opinions and recommendations contained therein.

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts or commodity options can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results.

Trade recommendations and profit/loss calculations may not include commissions and fees. Please consult your broker for details based on your trading arrangement and commission setup.

You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should read the "risk disclosure" webpage accessed at www.DanielsTrading.com at the bottom of the homepage. Daniels Trading is not affiliated with nor does it endorse any third-party trading system, newsletter or other similar service. Daniels Trading does not guarantee or verify any performance claims made by such systems or service.

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