In the run-up to the OPEC decision, oil derivatives showed investors had, unusually, been willing to pay more to protect against a surprise rally in the price, than a surprise fall. Oil drillers were hit hardest. “It means that there is a loss of confidence in the market after Opec, and people expect low prices to last longer”, said Oystein Berentsen of Strong Petroleum in Singapore. US crude fell $2.17, or 5.4 percent, to $37.80 a barrel on the New York Mercantile Exchange, its lowest price since February 2009. By the end of previous year, oil was trading at a 50% discount.
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“On the heels of the now-concluded December Organization of the Petroleum Exporting Countries meeting, the prospect for a near term fundamental shift in global crude supply seems all the less likely”.
Crude prices remained near 7-year lows in early Asian trading on Tuesday as OPEC continues to pump near record oil to defend market share, compounding a glut that is seeing hundreds of thousands of barrels produced every day in excess of demand.
A barrel of benchmark Brent crude was changing hands for less than $41 a barrel in NY on Monday night after Opec – heavily influenced by Saudi Arabia – did nothing about a market already seen as saturated. OPEC is adamant on retaining market share, and weeding out high-cost U.S. shale producers, which have been blamed for bringing the glut to the market.
The dollar rose on expectations the US Federal Reserve is on track to raise interest rates next week in the wake of a solid November jobs report.
Tom Kloza, global head of energy analysis at the Oil Price Information Service, pointed out some other “big losers” from the oil-price plunge.
“Past communiques have at least included statements to adhere… or maintain output in line with the production target (of 30 million barrels per day)”.
That view echoed the verdict of the investment bank Goldman Sachs, which said after last Friday’s Opec meeting in Vienna, that oil could fall as low as $20 a barrel. At the same time, energy companies have laid off hundreds of thousands of employees around the world, and oil-producing nations from Venezuela to Russian Federation are suffering from lower revenue.
Office Depot fell 15.7 per cent to US$5.59 after the US Federal Trade Commission sued to block its merger with Staples, which fell 13.8 per cent to US$10.66.
And with higher demand for the fuel, he’s looking for the U.S.to consume an additional 250,000 barrels of oil a day, which will help to “balance the global oil market”.
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The UK Oil and Gas and the mining indexes fell 4.0 per cent and 1.7 per cent respectively after crude oil prices hit their lowest in almost seven years following an OPEC meeting that ended in disagreement over production cuts and as metals prices fell on a stronger U.S. dollar. “With this risk out of the picture, the oil price declines further”. Increased strength in the dollar for a second straight session made it more expensive to hold crude positions.
