With no major new discoveries on the horizon, a simultaneous decline may be facing Saudi Arabia, while the Iran/Russia axis, along with Venezuela, pressures OPEC to cut production, or else. While forcing America to curb its world-class energy sector, bringing prices down to less than one half the previous $100 per barrel rate, which the Saudis could profitably live with, while continuing peak production, have temporarily secured their market position. Calls for a possible devaluation also overlook the reality that the Saudi economy is about as dollarized as a country can get without becoming a 51st state: nearly all of its revenues are dollar denominated, and a lion’s share of its imports are dollar denominated. Various reports say the bloc plans to maintain the same policy despite protests by the less cash-rich smaller players.
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West Texas Intermediate (WTI) for January delivery dropped as much as $1.31 to $40.59 a barrel on the NY Mercantile Exchange and was at $40.67 at 3:58pm Hong Kong time.
January Brent crude LCOF6, -2.19% on London’s ICE Futures exchange fell $0.87, or 2%, to $43.78 a barrel.
Oil has slumped about 45% the past year amid speculation a global glut with persist as Opec continues to pump above its collective quota.
The break in USA crude futures below $40 a barrel exacerbated the pace of the selling, CMC’s Lawler said.
While OPEC keeps pumping crude at a high pace, USA production has started to tail off. Output peaked at 9.6 million barrels a day in April and has fallen to below 9.2 million barrels a day.
“I still think the primary factors in the market are the excess supplies and worries that we could have weak fuel demand growth next year”, said Gene McGillian, analyst at Tradition Energy.
“OPEC isn’t going to do a damn thing, except perhaps confuse the market”, Mike Wittner, head of oil-market research in NY at Societe Generale AG, said by phone. Any price increase could prompt USA producers to add more drilling rigs, pushing prices lower again. As the industry’s standard currency, a stronger greenback means more expensive oil for traders holding other currencies.
“The markets would likely rebound only if they saw a fall in U.S. crude inventories, while declining USA crude output and seasonal demand provide a few support to oil at low prices”. Algeria has called for a price floor, while Ecuador’s oil minister said the only way to balance the market is to cut production.
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The 12-nation oil cartel is scheduled to meet on December 4 in Vienna but few in the market expect OPEC to deviate from its strategy.
