Month: January 2016

“The paradox of Norway’s oil exports is that lower foreign earnings translate into more, not less, demand for NOK.”

That’s from Deutsche Bank and it sums up the conundrum facing Norwegian officials as they attempt to cope with the sharp decline in crude prices that threatens to cripple the country’s economy.

Norway’s prime minister, finance minister and central bank governor held an extraordinary meeting last week to discuss the possibility of implementing emergency measures to shore up the economy in addition to record fiscal stimulus.

It’s “not a crisis,” they concluded, an assessment that’s sharply at odds with comments made by Bente Nyland, director general of the Norwegian Petroleum Directorate earlier this month and sharply at odds with reality.

“Right now the economic policies that we presented in our October budget are working,” Finance Minister Siv Jensen said. “What we have said today is that we are prepared to act if needed.”

Compounding the problem for Norway is that while the country’s officials remain “ready to act”, central bankers the world over are already acting and that’s inhibiting the NOK’s ability to function as a counter cyclical buffer for the country’s economy.

Even as the ECB, the SNB, the Nationalbank, and the Riksbank all stuck in NIRP, the Norges Bank is at 75 bps. Positive 75 bps.

That means the NOK can’t fall as much as it needs to to help the economy absorb the blow from lower crude. As Bloomberg put it last year, the krone “just can’t get weak enough.”

Here’s the rub. In order to fund the fiscal stimulus the economy needs to stay on its feet, Norway is tapping into its sovereign wealth fund. In short, expenditures are set to exceed revenues and so, it’s time to tap the piggy bank which, at $830 billion, is the largest rainy day fund on the planet. The problem here is that oil proceeds must be converted to kroner before they can be used to cover budget needs. That means the Norges bank is a buyer of NOK. Here’s how it works, via Deutsche: 

The amount of state petroleum revenues converted into NOK is a function of the non-oil budget deficit. Revenues in foreign currency from the SDFI are transferred daily to the Norges Bank’s petroleum buffer, before being distributed to the GPFG. By contrast, revenues from the Statoil dividend and oil tax are transferred to the government directly in krone, after companies have sold their foreign exchange revenues to pay the dividend and the tax.

 

When krone revenues from the Statoil dividend and oil tax exceeds the non-oil budget deficit, the Norges Bank converts this surplus on behalf of the government into foreign exchange, depositing it in the petroleum buffer before transfer to the GPFG. The Norges Bank thus buys foreign exchange and sells krone on behalf of the government. Where krone revenues from the Statoil dividend and oil tax are insufficient to cover the non-oil budget deficit, no krone is converted back into FX by Norges Bank. Instead, SDFI revenues in the petroleum buffer are converted into krone. As a result the Norges bank sells FX and buys krone on behalf of the government.

Simple enough. Here it is visually:

Here’s a look at the history as well as a chart which depicts the convergence of oil revenues and the deficit:

So as you can see from the left pane above, the Norges Bank announced it was set to become a buyer of NOK at a clip of 250 million per day starting in October of 2014.

“The amount that they will buy is even bigger than we expected,” Kjersti Haugland, an analyst at DNB ASA, remarked at the time.

That total was up to 500 million per day by the end of 2015 and today we learn that it’s about to get a whole lot bigger. 

“The Nordic country will buy 900 million kroner ($104 million) a day next month as it converts its oil income into local currency to cover budget needs, ” Bloomberg reports.

“This is a substantial change,” DNB ASA’s Magne Oestnor remarked. “This will add pressure to the appreciation of the krone. Suddenly Norges Bank goes from being just a medium size flow everyday to starting to be a flow to reckon with.”

Yes a “flow to be reckoned with,” and the problem with that should be immediately apparent. Norway needs to buy NOK in order to fund the stimulus the country hopes will support the economy. But by doing so, the Norges Bank is putting upward pressure on the currency at a time when it really needs to depreciate. In other words, what Norway must do to pay for stimulus (buy kroner) is indirectly hurting the economy by keeping the NOK from depreciating as much as it otherwise would. This is complicated by the fact that the country’s largest export destinations are still in easing mode.

(Norway’s export destinations)

On Friday, data showed unemployment soaring to its highest level in more than a decade and retail sales falling. “The poor economic data offset the effect of rising krone purchases,” Bloomberg notes.

Maybe. But the upward pressure on the currency is going to intensify in February and besides, were it not for Norges Bank buying, the currency might have fallen further on the bad data. 

It will be interesting to see how this “paradox” resolves itself going forward and whether the Norges Bank will end up fighting itself à la Fight Club by cutting rates to drive down the NOK even as they buy the currency hand over fist.

via Zero Hedge http://ift.tt/1nTG3ex Tyler Durden

With markets in a sharp correction to start 2016, market commentators nevertheless still hold a downside bias for gold. The rationale for this downside has shifted however, from a fear of FED normalization to a fear that deflation and associated asset-capitulation would take gold lower in a “dollar short squeeze”, reminiscent of gold’s sell off in 2008. With a well-grounded framework for analyzing the gold price, we fear neither rationale; we still view a significant fall from today’s level an unlikely outcome, or temporary at best. In fact, as many other asset classes are mired in wide valuation outlooks at either extreme (a binary outcome: normalization or capitulation), the three core drivers of the gold price remain firmly in gold’s favor.

 

This is not 2008 – at least not for gold

 

The investing crowd seems to be split in half. There are those who believe that this is just another brief correction in the broader markets, as we saw last August, and that this is now the time to buy as markets will recover quickly. The other side fears that things are unfolding as in 2008 all over again given the significant losses that could accrue from oil and China/RMB devaluation-related credit shocks. Many believe that the unprecedented interventions from central banks around the world have inflated all asset classes and that these bubbles are now deflating, with the FED content to sit this one out and let animal spirits play their course given US labor market strength. The result, they fear, is that equity markets will come crashing down once again.

 

What these scenarios have in common however, is that they both apparently pose downside risk for gold prices in the anecdotes of most analysts. In the first scenario, further FED rate hikes seemingly create headwinds for gold. In the second scenario, gold would decline amidst a broader asset sell off, just as it did in 2008. We disagree in both cases. Rather, the three core drivers of the gold price are today firmly in gold’s favor, regardless the path of equities or other asset classes. In this note we will use the 2008 gold-sell off to illustrate what the key drivers are that took gold prices down back then and explain why the same drivers are unlikely to push gold much lower from here in either scenario above.

 

Ultimately, real interest rates matter for gold, not nominal rates, and energy markets have virtually priced out future supply growth following an unprecedented supply glut. These factors help provide a solid floor for gold price fundamentals (in both supply and demand) under either market scenario.

 

The 2008 scenario

 

While gold has held up well over the past months, some people express concerns that gold might not be immune if markets deteriorate further. They are quick to point out that in early 2008, gold dropped from a high of $1003/ozt on March 14, 2008 to a low of $712/ozt on November 12, 2008 while the S&P500 lost over 30%.

 

The common narrative in the gold market is that gold prices are driven mainly by fear or greed. So why then back in 2008, amidst the greatest market panic in nearly a century, did gold not go higher, and actually declined in USD terms? The explanation we often hear is that the credit crisis lead to a flight to “quality”, and the quality in 2008 was apparently the USD and government bonds. US investors liquidated foreign assets en masse and repatriated the money back to the USD, thus creating demand for USD. The story goes that not just did that not lead to more gold demand, gold was outright sold to meet margin calls. While we are not denying that these flows can have a short term impact on gold futures and push the price of gold above or below the fundamentally justified price over short periods of time, one does not need any of the above explanations to understand the drop in price in 2008. In fact, two variables – neither having anything to do, at least not directly, with either fear or greed – can explain almost the entire move.

Figure 1: At the beginning of the 2008 credit crisis, gold sold off as equities moved lower $/ozt (LHS); $ value index (RHS)

 

Source: Bloomberg, GoldMoney Research

 

We like to recall for our readers that we published our framework note on gold pricing last fall: Gold Price Framework Vol. 1: Price Model, where we presented our findings on how gold prices form. Solving for gold in US dollars, we found that the majority of price movements can be explained by just a few key drivers: real interest rate expectations, central bank policy, and changes in long-term energy prices. More specifically, the monthly change in the price of gold is primarily a function of monetary demand and supply for gold (COMEX net speculative positions, ETF and Central Bank net sales) and changes in the markets expectations for future energy prices, consistent with the view that gold is a store of value (money) with an energy intensive replacement cost. The first three factors impact gold prices because they directly affect the price of currency and demand for gold in portfolios, while energy feeds into production and replacement costs and derives its monetary proof of value.

 

Figure 2: Gold prices are mainly driven by real interest rates, central bank policy and longer-dated energy prices $/ozt

 

 

Source: Bloomberg, GoldMoney Research

 

Before 2008, gold had been on a steady rise, supported by the factors described above. Longer-dated energy prices had been rising for nearly a decade while real interest rates had declined for a decade. But these trends came to a sudden halt and a sharp reversal when the credit crisis started.

 

Longer-dated Energy prices moved lower….

 

The 5-year forward price for WTI went from $21/bbl in 2001 all the way to $85/bbl by the end of 2007. From there it moved higher in early 2008 but collapsed into year-end as the credit crisis hit full force, crippling global economic growth and thus the outlook for oil demand. Longer-dated oil prices as measured by the 5-year forward price fell 20% from $101/bbl (interim gold price peak in March) to $82/bbl (gold price trough in November). Our model predict that this has pushed gold prices lower by about $140/ozt (see Figure 3).

 

Figure 3: The decline in longer-dated energy prices and the sharp and sudden increase in real rates amidst the credit crisis created strong headwinds for gold $/bbl (RHS), % (LHS)

 

Source: FRED, Bloomberg, GoldMoney Research

 

…and real interest rates sharply higher

 

Real-interest rates, as measured by 10-year TIPS (Treasury Inflation Protected Securities), declined from an average 3.75% in the year 2000 to 1.8% by the end of 2007 and hit a low of 0.95% on March 12, 2008, exactly two days before the peak in the gold price. But as the credit crisis unfolded, inflation expectations waned and volatility increased. The result was that real-interest rates rose sharply to over 3% by October. On November 12, 2008, 10-year TIPS were 2.79%. Our model implies that this move had impacted gold prices by about $135/ozt.

 

The combined impact from a decline in longer-dated energy prices and the sharp move higher in real-interest rates explain about $275/ozt of the $282/ozt move lower in gold in 2008. From there the paths of the two drivers split. Longer-dated oil prices continued to move lower for a while, eventually hitting a low at around $66/bbl in spring 2009. This further decline in oil prices was offset by the sharp decline in real interest rates as the FED began to intervene in the markets, pushing real interest rates to new lows.

 

The takeaway is that the decline in the price of gold in 2008 can be explained quite well without the need of Malthusian thinking or the notion of “fear and speculation” which are typically cited when gold prices move against what common wisdom would predict. But more importantly, it helps us understand the current environment we are in and whether there is presently the risk that gold prices sell off in a broader market sell off.

 

In fact, the situation this time couldn’t be more different in our view. First of all, energy prices have already sold off sharply. And by that we don’t mean the decline in spot prices from $110/bbl to now under $30/bbl over the past 18 months. As we have shown in our framework note, it’s not the oil spot price that drives gold, it’s the market’s expectation for future energy prices. Longer-dated oil prices peaked back in 2011 and have been on a downward trend since. 5-year forward WTI prices have dropped to $45/bbl, about 30% below the lowest levels during the credit crisis. These price levels now hold a significant asymmetry as well, as the entire oil curve prices below levels needed to arrest oil production declines and maintain the industry infrastructure required to meet future demand, as we will explain in more detail later in this report.

 

Figure 4: Long-dated energy prices are one of 3 important drivers for gold prices % change year-over-year

 

Source: Bloomberg, GoldMoney Research

 

 Figure 5: While in 2008 long-dated energy prices were at a peak, they now at a low $/bbl

 

Source: Bloomberg, GoldMoney Research

 

Similarly, real-interest rates are not coming out of a multi-year decline as was the case in 2008. While they have declined for decades, for nearly 3 years they actually have been going up. Real-interest rates troughed in 2013 at -0.74% and have since recovered steadily back to 0.67% on the back of expectations for a series of FED hikes (see Exhibit 6&7).

 

Figure 6: The second important driver are real-interest rates, which are inversely correlated to gold

 

% change y-o-y (lhs), absolute change y-o-y (rhs)

 

 

Source: FRED, Bloomberg, GoldMoney Research

 

 Figure 7: Real-interest rates have been going up over the past years and are now at a high $/oz (lhs); % (rhs)

 

Source: Bloomberg, GoldMoney Research

 

 

The multi-year decline in the price of longer-dated oil combined with the recovery in real-interest rates was responsible for the gold price decline since its peak in 2011. While this created major headwinds for gold prices, it also implies that they are now behind us.

 

What are the risks to long-dated energy prices from here?

 

In our upcoming Framework Report Vol. 2 we will examine the energy side of the gold price equation in greater detail. But in a nutshell, long-dated oil prices have dropped to a level where a large share of future oil projects are no longer economical. US shale oil production, which was the main cause for the current oversupply, cannot grow over the next few years at the prices embedded in the forward curve and thus will continue to decline. The result is that future demand cannot be met with oil supply projections at the price levels currently embedded in the forward curve. Thus longer dated oil prices are unlikely to remain at these levels for an extended period. In a 2008 type scenario with broad based asset sell offs and a collapse in global economic growth would be bad news for oil spot prices. Relentless production growth have pushed global petroleum inventories already to all-time record highs on the back of falling oil prices, despite the fact that demand growth has been really strong. A slowdown in demand due to weaker global economic growth would lead to further builds, even production growth has slowed down dramatically by now. But as we explain in our framework report, inventories drive time-spreads and thus spot prices, not long-term prices. In a 2008 type scenario it would certainly be hard for long-dated oil prices to rally over the coming months, but again, given production economics for future supply, most of the decline in long-dated prices is likely behind us. Thus any further decline in long-dated prices would only have a very limited impact on gold. For example, were the 5-year forward price to drop by another 20% from here, it would take gold down a further $60-65/ozt. But at that point, a very large part of global oil production would be cash negative for the indefinite future and 100% of all future projects would be uneconomical.

 

What about real-interest rates?

 

Real-interest rates bucked their longer term downward trend over the past two years and recovered from negative -0.7% to +0.7%. The recovery was on the back of an apparently improving economy and the outlook for FED rate hikes after years of near zero interest rates. The FED finally came though and hiked rates by 25bp in December and held out further hikes in prospect through 2016. However, real-interest rates didn’t rally after the hike, despite the fact that the market was divided whether the FED would actually be able to push further hikes through. In fact, expectations for FED interest rates levels by December 2016 have been on a downward trend for a while now. They spiked briefly approaching the Dec 15 FOMC meeting but since then have declined sharply again. The market is questioning whether the FED will be able to hike rates if markets continue to decline.

 

Figure 8: Expectations for FED funds rate by the end of 2016 as implied by the futures market have declined sharply %

 

Source: Bloomberg, GoldMoney Research

 

Importantly, should equity markets continue to sell-off, real-interest rates are unlikely to show a sharp move up comparable to 2008 again. With further sell-offs in equity markets, the market might start to price in lower growth, which in turn would put downward pressure on inflation expectations. However, in such a scenario, it’s unlikely that the FED would continue hiking rates. A sharp deterioration in the economic outlook would most likely lead to a U-turn in the FEDs policy and the markets will anticipate that. We would expect that real-interest rates would be pushed lower again.

 

What if this was just a blip and equity markets recover, just as in August?

 

What about the scenario in which equity markets recover and the FED keeps hiking rates? As we have outlined above, what really matters for gold is real-interest rates, not nominal rates. To recall, real interest rates are measured as nominal interest rates minus inflation expectations. The easiest way to track real interest rates is via Treasury Interest Protected Securities (TIPS). There are two reasons why we think that even if the FED continues with further rate hikes, real-interest rates are unlike to go much higher.

 

First, Inflation expectations have been on a steady decline since the peak in gold in 2011, from around 3.6% to 2.6%. In our view the FED is unlikely to raise rates further in 2016 if this quells the last bit of inflation expectations.

 

Second, and more importantly, much of the expected further FED hike is already priced into TIPS yields. It was the outlook for rate hikes that brought TIPS yields from -0.7% to +0.7%. But over the past months, TIPS yields haven’t moved much despite the fact that the FED actually did hike rates in December. Hence, further rate hikes as telegraphed by the FED probably won’t have much impact on TIPS yields from here. Even if we assume there will be further rates hikes by 1% and if we assume they push 10-year Treasury yields up by a full percent with no change in inflation expectations, this would push 10-year TIPS yield only up 40bp. The impact on the gold price would be only about -$30/ozt, or about 3% from today’s level. That is in a range of weekly volatility, hence it would be nearly just noise, rather than a meaningful fundamental decline in price. Arguably, the market seems to increasingly discount these rates hikes. At this point, the markets expectations embedded in the futures market for FED fund rates by the end of 2016 are at just 0.6%, much lower than the formal analyst consensus of 1.25% as reported by the Wall Street Journal and lower than the FEDs own guidance of a further 1% hike in 2016 bringing the FED fund rate to 1.25-1.5%. However, while the probabilities for 2016 rate hikes implied by the futures market have declined significantly, TIPS yields have not followed. TIPS yields continue to reflect higher FED funds expectations (or inflation expectations have declined, which would be a headwind for future FED hikes if correct). Hence, should the markets worries about a broader asset-sell off subside and probabilities for future FED rate hikes increase, it would most likely not impact TIPS yields much.

 

On the other hand, a rebound in confidence about the outlook from global growth would be positive for energy prices. Demand would remain strong on the back of low prices and accelerating economic growth, and, combined with continued slowdown in production growth, would lead to lower inventories. But more importantly, the market would have to reassess the outlook for future demand growth and the increasing risk that future supply will not be able to meet demand,. The result would be a recovery in long-dated energy prices, which would be positive for gold.

 

Hence, both low energy prices and higher real interest rates are already reflected in the current gold price. As longer-dated oil prices cannot remain below industry costs indefinitely, nor real interest rates rise much higher given a data dependent FED, this creates an asymmetry to gold prices, regardless of broader market normalization – or capitulation.

 

You can view the entire research piece here:

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via Zero Hedge http://ift.tt/1P2aLZB Max.Power

First thing this morning, after the BOJ’s announcement of negative rates which promptly pulled all treasury yields around the globle lower, we asked a simple question: how big large the global negative rate bond universe grow to?

How many trillions in government bonds are now sub zero

— zerohedge (@zerohedge) January 29, 2016

Promptly thereafter the FT was kind enough to do the math: the answer – a record $5.5 trilion in government bonds are now trading at negative yields.

 

This means that about about one quarter of all global bondholders will end up paying their government custodians for the pleasure of parking their cash in the “safety” of government bonds.

The FT adds that “fears for economic deterioration and increasingly abnormal policies adopted by global central banks to ward off the threat of deflation have resulted in a bizarre scenario in which investors pay governments to hold their money.

Figures from JPMorgan show that negative rates, once considered only theoretically possible, now account for one quarter of the index for government bonds.

 

On Friday, yields on Japanese, French and German bonds hit record lows after the Bank of Japan decided to adopt negative interest rates, just over one week after governor Haruhiko Kuroda ruled the policy out.

 

In Europe, the first region to adopt negative interest rates, around half of all government bonds carry sub-zero yields, led by Germany, Finland and Switzerland, where negative yields extend all the way to bonds with 10 year maturity.

The chart below demonstrates how unprecedented today’s bond situation is:as of this morning at least 13 countries had 2Y yields that were negative, and 10 nations could boast with negative rates all the way to the 5 Year mark:

 

And just to round out the picture, the WSJ adds that over a fifth of global gross domestic product, or 23.1%, will now be produced in countries that have negative interest rates, noting that the ECB and BOJ together are responsible for around 21% of global GDP. Swiss, Swedish and Danish GDP add up to less than 2.5% of the global total.

More:

So far the moves to negative interest rates have been relatively shallow, with almost all set at less than minus 1%. But even if the size of the move isn’t dramatic, the fact that banks are willing to do this is.

The conclusion: “Never before have so many central banks explored sub-zero territory at the same time.“

via Zero Hedge http://ift.tt/1TrX2Rf Tyler Durden

The US total rig count dropped 18 to 619 in the last week with a drop of 12 in oil rigs (to 498) as the ongoing lagged drop of crude drives rig counts every lower. Perhaps oddly, given the rig count decline, WTI is tumbling as a 12 rig drop is clearly not enough…

• *U.S. TOTAL RIG COUNT DOWN 18 TO 619 , BAKER HUGHES SAYS
• *U.S. OIL RIG COUNT DOWN 12 TO 498, BAKER HUGHES SAYS

The trend continues…

 

And it appears the market wanted more rig count declines…

 

Charts: Bloomberg

via Zero Hedge http://ift.tt/1VvFzpv Tyler Durden

What will they call this "crisis"? Or is it transitory and different this time?

Thanks to BoJ's idiocy, The Dollar is surging once again…

 

It appears "king dollar"'s strength may not represent the "strength of the US economy" after all. As we noted a year ago, a strong dollar may not be the 'unambiguously good' thing so many proclaim it to be. However, with the rest of the world competitively weakening their currencies (in order to 'help' their economies), we hope the chart above will help readers decide which they prefer… a stronger (US multinational-crushing) dollar or a weak (domestic drag) dollar?

via Zero Hedge http://ift.tt/1PJZLFT Tyler Durden

Submitted by Nick Cunningham via OilPrice.com,

The rumors of a coordinated production cut between OPEC and Russia continue to grow more serious. The latest comes from the Russian energy minister Alexander Novak, who insisted that Russia will hold talks with OPEC in February on a possible agreement to reduce output.

“There are very many questions, on checking cuts, from what base to count from. In order to start working through these issues, we need general agreement, it’s too early to talk about that. That’s the subject of the meeting and discussion (in February),” Novak told reporters, according to TASS.

The headline figure: a 5 percent production cut across the board for all participants. That’s what Saudi Arabia floated last year. When asked if that was still on the table, Novak replied, “That is precisely the subject for debate.” The meeting could tentatively take place in February. It was originally proposed by Venezuela, which has pleaded for emergency measures to stabilize oil prices.

Oil prices skyrocketed on Wednesday and Thursday after the comments from Novak. During intraday trading on January 28, prices shot up by more than 8 percent. By midday, WTI and Brent fell back a bit, but were still up more than 3 percent. That is the highest level since the first week of January.

Coordination on production cuts between OPEC and Russia has always been a long shot, and probably still remains an unlikely development. The big difference this time around, though, is Russia’s change in tone. Saudi Arabia had hinted at its willingness last year to undertake a 5 percent production cut if Russia did the same, but up until now Moscow never really took the idea seriously.

On January 26, however, Russian oil executives met with Russian government officials in Moscow to discuss their predicament. Reuters reported that the meeting resulted in an openness, if not complete agreement, to begin talking with OPEC about cooperation.

"At the meeting there was discussion in particular about the oil price and what steps we should take collectively to change the situation for the better, including negotiations within the framework of OPEC as a whole, and bilaterally," Nikolai Tokarev, chief of state-owned oil pipeline company Transneft, said according to Russian media outlets.

"The main initiative is being shown by, of course, our Saudi partners. They are the main negotiators. That means that they are the ones we need to discuss this with first of all,” Tokarev added.

Russia’s oil production hit another post-Soviet record in December, climbing to 10.8 million barrels per day (mb/d).

There seems to be a newfound openness from many different oil producers to look at ways of stabilizing the market. Sub-$30 oil tends to do that. Iraq’s finance minister told Reuters on Wednesday that his country would be willing to participate in talks on production cuts.

However, don’t get too excited. Shortly after the comments made from Russia’s energy minister, some OPEC officials shot down the speculation. Four OPEC officials said that they had no knowledge of a February meeting, insisting that the next OPEC summit was still scheduled for June.

Moreover, even if Russian officials are open to discussion on cuts in output, they face serious obstacles on following through on actual reductions. Russia’s main oil fields are already facing natural decline, and many in the industry would balk at throttling back on production. Also, there are technical obstacles. Russia is largely unable to reduce output in winter months.

Perhaps more important is the fact that Russia’s oil sector is not dominated by one state-owned company like Saudi Aramco. It would be more difficult to corral an array of semi-private companies, many of which are partially owned by international oil companies like BP. Investors may be placing too much faith in the state if they think Russia can adjust production as easily as, say, Saudi Arabia.

Yet another obstacle is Iran. Iran has shown a dogged determination to return to the oil market, with pledges to ramp up output by 500,000 barrels per day in the near-term. It is hard to imagine Iran being willing to slash output just as it finally has reached its goal of ridding itself of sanctions.

To complicate matters even further is how to measure what a 5 percent production cut would look like. What is the baseline? 5 percent below what level? Production levels for OPEC members are constantly shifting, and some have even made significant gains as of late. For example, Iraq managed to increase output by 300,000 barrels per day between October and December, hitting a high of 4.3 mb/d by the end of 2015. A 5 percent cut would merely bring it back to October levels. That would be less painful than, say, a 5 percent cut in Venezuela, which saw a slight erosion of output over the same time period.

In other words, until something more concrete emerges, the speculation of a coordinated production cut between OPEC and Russia is just that: speculation.

via Zero Hedge http://ift.tt/1QLudhK Tyler Durden