Saudi Arabia halts oil production. Will this call into question the multi-asset direction and focus the mind on FX?

The price of crude oil has plummeted from $115 per barrel in the height of summer last year to a Brent Crude oil spot price of just $31.64 per barrel today, and oversupply in the form of unsold barrels blighting the horizon indicates that it is unlikely to recover soon. Today, Saudi Arabia, one of […]

Saudi-Arabia

The price of crude oil has plummeted from $115 per barrel in the height of summer last year to a Brent Crude oil spot price of just $31.64 per barrel today, and oversupply in the form of unsold barrels blighting the horizon indicates that it is unlikely to recover soon.

Today, Saudi Arabia, one of the largest oil producers in the world, halted production of oil after talks with Russian authorities in Qatar.

At a time when many electronic trading firms have embraced the multi-asset ideology and are adding various commodities and stocks to their platforms to complement the initial FX instruments that they traditionally generated their revenue from, the bete noire of the entire commodities sector is, and looks set to continue to be, oil.

As reported by FinanceFeeds last week, oil prices could drop further, with some analysts suggesting that it may visit the $10 mark at some point in the near future. The world does not use as much oil as it did thirty years ago, and within a very short time, alternative fuels, including electricity which is not generated using fossil fuel-fired power stations have popped up in every aspect of engineering.

“My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel” – Sheikh Rashid Bin Said Al-Makhtoum.

Futures contracts for Brent crude actually appreciated slightly this morning. Contracts with April delivery rose to $35.26 per barrel, however a cessation of production and the mountain of oversupply show the real situation.

​The discussions this morning in Doha, UAE, were held after more than 18 months of plummeting oil prices, triggered by Saudi Arabia’s strategy to keep production high, which in turn lowered prices, in a hope that this would drive out higher-cost producers.

The difficulty is that Saudi Arabia’s plan has largely been unsuccessful; and has not driven out the competition despite hammering the profits of every oil producer.

Capture

While communist Venezuela, a large oil exporter, has been particularly badly hit, even Saudi Arabia has been feeling the pain and has little or no back up plan. I can remember in 2005, I was at a private venue and was addressed by Sheikh Maktoum Hasher Maktoum Al Maktoum of Dubai, an oil magnate and an investor in international motorsport.

His opening speech at the launch of the A1 Grand Prix series at its inaugural event at Brands Hatch Racing Circuit in Kent, England, began not with the expected bravado of a motorsport enthusiast who lived for the finely tuned racing engines and smell of high-octane fuel, but by his quoting Sheikh Râshid bin Saîd Âl Makṫoum, who famously said “My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel.”

At that event, Sheikh Maktoum was referring to Sheikh Rashid’s concern that Dubai’s oil, which was discovered in 1966 and which began production in 1969, would run out within a few generations and that the OPEC countries had no back up plan whatsoever, and were totally reliant on the trade of crude oil with every other nation in the world, making it a single-asset region in terms of commodity trading and world business.

Indeed, today, there are formulae of motorsport in which the cars do not have internal combustion engines at all, and are indeed electric.

Sheikh Rashid’s predictions were on the right lines, however oil never actually ran out, and is a regenerating resource. The end result is roughly the same, however as instead of running out of oil the demand is very much less now than it was at the time that famous quote was coined, and the markets are bearing that out.

Last year Saudi Arabia had to approach the bond market for $27bn and it is now mulling an initial public offering of its state-owned oil company Saudi Aramco.

Electronic trading companies with their own proprietary platforms which are concentrating on true multi-asset product ranges, such as FXCM and Saxo Bank will likely be able to leverage the value of other, non-fuel related commodities and non-bank related company stock, however many firms during the course of last year which do not have a proprietary platform added Brent Crude to their range of instruments with a view to diversifying their risk profile, Pepperstone and AxiTrader being notable examples.

The question now is, with halted production in Saudi Arabia, what effect this will have on an already depleted value.

 

Image compliments of Nora.alsh2

Read this next

Retail FX

Weekly Roundup: Prop firm arbitrarily accounts, Interactive Brokers’ CFDs in Japan

FX, Fintech and cryptocurrency markets have been bustling with activity over the past week, as is often the case. Keep yourself informed and ahead of the curve with a curated selection of crucial stories and developments that are most relevant to those engaged in the markets.

blockdag

BlockDAG Redefines Crypto Mining as Presale Tops $18.5M, Outshining Ethereum ETF & Dogecoin Dynamics

The recent approval of the first Ethereum ETF in Hong Kong underscores a significant advancement in the cryptocurrency’s mainstream acceptance. While Ethereum continues to attract institutional attention, the Dogecoin price prediction suggests a possible resurgence, despite its current undervaluation from past highs.

Digital Assets

Bitcoin halving is done: ViaBTC mines historic block 840K

The Bitcoin network has confirmed its fourth-ever halving block, mined by the cryptocurrency pool ViaBTC, according to data from Blockchain.com. This significant event in the Bitcoin ecosystem reduced the mining reward by half, a deflationary measure occurring approximately every four years to control the issuance of new bitcoins and curb inflation.

Retail FX

True Forex Funds now offers Match-Trader and cTrader platforms

Proprietary trading firm True Forex Funds today announced the launch of Match-Trader, a multi-asset trading platform developed by California-based FX technology provider Match-Trade Technologies.

Retail FX

CySEC hits FXORO parent with €360,000 fine

The Cyprus Securities and Exchange Commission (CySEC) has fined MCA Intelifunds, trading as FXORO, a total of €360,000 for multiple violations of the Cypriot investment laws.  

Digital Assets

Binance’s CZ in good mood ahead of sentencing, says partner

Yi He, co-founder of cryptocurrency giant Binance, has shared a positive outlook on the legal situation of the exchange’s former CEO, Changpeng Zhao. Zhao is currently awaiting a sentencing hearing scheduled for April 30 in the United States.

Fundamental Analysis, Tech and Fundamental

Global FX Market Summary: USD, FED, Middle East Tensions April 17 ,2024

The Federal Reserve walks a delicate line, addressing high inflation through a hawkish stance while avoiding stifling economic growth.

blockdag

‘Kaspa Killer’ BlockDAG Goes To The Moon With $18.5M Presale, Draws Attention from AVAX and Kaspa Investors

Discover how ‘Kaspa Killer’ BlockDAG’s $18.5M presale and 400% surge positions it as the fastest-growing crypto, amidst AVAX’s anticipated market rally and Kaspa’s performance gains.

Tech and Fundamental, Technical Analysis

Bitcoin Technical Analysis Report 19 April, 2024

Bitcoin cryptocurrency can be expected to rise further toward the next resistance level 67000.00, top of the previous minor correction ii.

<