Bottom Fishing in the Oil Market

 

Want to share an article as well as some of my previous thoughts on how oil market will play out. The following article is largely consistent with my thought, although I disgree with the conclusion. the question is how to trade it. 

 

 

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At the current output level, Saudi fiscal spending needs >$90 oil to break even. Each day oil is < $90, Saudi is burning dollar reserve. yet the cost is <$10 for saudi. If they keep the price in the $60, but can produce twice as much by taking market shares away from other high cost producers, then they can still have fisical surplus. $60 oil is much better for Saudi in the long run than $90 oil. So they are making the sacrifice in the short term.

It is a game of chicken as in the case of SNB. Saudi does have huge foreign reserve to sustain low price, yet it is not a country of great geopolitical influence. You never know whether it will yield at some point.  

However it feels like Saudi and other Arab countries are determined in this round keep the price sustained at this low level for a lengthy period to kill, at least deter entrance, of the emerging US/Canada/Russian/other higher cost production.

Exactly how long and how high can it rebound? If my story makes senses, it paints a picture for how oil will bottom: it will NOT bottom until significant cut in production for higher cost production kicks in. You need to see lots of layoff and closed shops before price bounces. After that OPEC countries will produce enough to keep the price below cost of production for higher cost producers. 

just my 2c 
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[3bunny]

谢谢你总和大家分享你的知识和见解。