Tuesday, January 26, 2016

I guess the market is going to learn about perverse incentives the hard way.

Every time I read that oil companies are going to cut production I roll my eyes. I don't really think they can cut production because they are heavily indebted. They basically have no choice but to keep drilling. And frankly, I think the most the analysts that write about oil are just making shit up at this point.

Take this ridiculous article from CNBC.

"But the oil minister of Iraq said on Tuesday OPEC kingpin Saudi Arabia and top non-OPEC producer Russia are showing signs of flexibility about agreeing to tackle an oil glut that has pushed prices to 12-year lows.

"We have seen some flexibility from the brothers in Saudi and a change in tone from Russia," Adel Abdel Mahdi, whose country is the second-largest producer in the Organization of the Petroleum Exporting Countries, said. "

Making shit up! Yesterday Russia came out to say they were going to stop lending to all countries except one. Iran. This is not the sign of a country that can afford to do anything about an oil glut.

"Russia will not lend to other countries anymore, said Sergei Storchak, the Deputy Minister of Finance on Jan. 25, reports Vesti.Finance.

In 2015, Russia allocated 10 loans, including several to countries from the Eurasian Customs Union (Belarus, Kazakhstan, Armenia and Kyrgyzstan). In 2016 there will be no loans to any countries, with Iran being the only possible exception.

“The financial situation has now changed and we can scarcely afford to provide loans to any country,” explained Storchak. Source.

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