OPEC, hedge funds and the Sistine Chapel

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The most important Events in the Market Today:

  1. Oil is extending rally as investors wait for OPEC meeting on Thursday
  2. Global stocks mostly higher as markets recover poise
  3. Dollar creeps up off 6-month lows
  4. British pound slides as U.K. threatens to quit Brexit talks
  5. Bitcoin tops $2,100 for the first time!

For further info on these subjects, visit: www.investing.com

 

OPEC story

The story begins in the summer of 2016. Mohammad Barkindo had met Ed Morse in the Vatican’s Sistine Chapel.

It was unusual encounter which led to a later numerous important events.

The chat between two of them, at an energy industry event held in the Chapel, has caused OPEC to reshape the way of doing its businesses. It changed the way OPEC deals with hedge funds. And as well its influence in global oil market.

Barkindo, having had to deal with an oil price slump of that time, told Morse that OPEC aims to understand the way financial players worked in the oil markets.

“It was at the Vatican that we first discussed the idea of OPEC reaching out to the financial players in the oil markets.” (Barkindo)

“The world of oil has changed, including the fundamentals and its dynamics. And so must OPEC.”

He said Morse helped in organising a meet up for OPEC officials with hedge funds at the end of 2016.

“We went further to break the Berlin Wall with tight oil producers and met them in Houston in March.” (Barkindo said for Reuters)

 

Khalid al-Falih and his team

 

In different locations and meetings, Khalid al Falih and his team held discussions with hedge funds. They also met top trading houses Vitol and Litasco in Vienna in November, before the previous OPEC meeting. (According to some non-official news.)

Falih’s predecessor, Saudi oil minister Ali al-Naimi, often took advice from oil market consultants, but also often gave advice to hedge funds saying: “Leave the market alone”.

Now the situation has changed.

“As the market got increasingly financialised, the Saudis and others at OPEC understood and accepted it is not just driven by fundamentals and decided it was worth engaging with those who move the market short-term.” (Reuters)

 

Whatever it takes

Observing the past two months, Falih has couple times used the phrase by Mario Draghi, from his successful bid to defend the euro.

OPEC will do “whatever it takes”, to reduce the oil glut, says Falih.

Hedge funds bought firmly into the oil market late last year. When it became apparent OPEC is going to cut production. They have heavily sold those positions in recent weeks, stalling a recovery in oil prices near $50 a barrel.

“It is exceptionally important for producers to understand the behaviour of financial market players and what they think about future price trends.”

This time OPEC will definitely do whatever it takes to achieve the kind of equilibrium, and stability in global Oil market.

 

 

 

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