Commodities glut here to stay? – ANZ

By FXStreet Analysts at ANZ noted that, overnight, Saudi Arabia and Russia reached a preliminary agreement to freeze their oil output at near-record levels.

Key Quotes:

“This is described by Bloomberg as “the first significant cooperation between OPEC and non-OPEC producers in 15 years”.”

“Qatar and Venezuela are also on board. No cuts in production were agreed, however, given oil producers are battling for long-term market share, which weakens the impact of the agreement significantly, as does the lack of involvement by Iraq and Iran.”

“Oil prices are currently around 70% lower than their 2014 peak, and appear to be headed still lower on current global production rates. Certainly the market’s response to the agreement suggested they are underwhelmed: oil fell back having gained before the meeting.”

“Oil prices at current levels are profitable for very few, and so we find ourselves in that classic commodity equation: the best cure for low prices is low prices. But in this stubborn industry it could be a while.”

“Of course our own dairy industry has shades of the same, with politics – particularly in Europe – getting in the way of a natural market supply response to lower prices.

It will come as something of a relief that prices didn’t …read more

Source:: FX Street