Oil charges have halved during the last 12 months after OPEC made a decision to maintain its production amounts, and sometimes even improve them, to preserve market-share, in part by making larger – cost companies elsewhere to lower on result. This is the biggest dip since August, when WTI oil prices was also tanking.
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Brent for January settlement fell as much as 62 cents, or 1.4 percent, to $44.04 a barrel on the London-based ICE Futures Europe exchange.
Pressure is growing on OPEC members as the average price that their oil fetches falls to $38.29 a barrel.
Brent prices were nearly stable last week.
“The drivers that pushed prices lower are still there”, said Hamza Khan, head of commodity strategy at ING, pointing to the strong dollar and increasingly efficient USA shale operations in addition to the overhang of physical oil. It hit $40.59 earlier in the session, near levels seen on Friday before the December contract expired.
This week, analysts will be taking cues from US economic indicators such as manufacturing data, weekly jobless claims, and a forecast for third-quarter gross domestic product.
Oversupply concerns are drowning out any geopolitical risk premium that has hit the market as bombing raids against Islamic State in Syria intensify. Any traction above those levels should favor at least a bounce to at least the mid-$40s. Unfortunately for the bulls, the reasons Oil is at $40 has not abated.
What needs to happen is that Saudi Arabia needs to show a willingness to cooperate over a broad and coordinated slowdown in oil production. There has, however, been a lopsided benefit for Iraq’s oil producing capacity. The Wall Street Journal Dollar Index, which tracks the greenback against a basket of other currencies, rose 0.4% on Monday, as anticipation continues to mount that the U.S. Federal Reserve will raise the interest rates in December.
So let’s take a quick recap of the oil price situation as it stands. “The principles of OPEC were to act on the price of the crude oil, and we need to go back to the principles of OPEC”.
Long-term demand growth is unlikely to be stellar. For comparison, oil demand for 2015 stands at 94.5 million barrels a day. According to figures released by the Venezuela Ministry of Energy and Petroleum, the average price of Venezuelan crude sold by Petroleos de Venezuela S.A. (PDVSA) during the week ending November 20 was $34.46, down $2.87 from the previous week’s $37.23. The price of oil has plummeted to 40 dollars per barrel, which is one of the lowest points of oil prices in over two decades.
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According to the latest report from Bank of America Merrill Lynch (BAML), the increasingly fragile fiscal position of Bahrain amid the significantly low oil prices is likely to prompt a downgrade in its investment grade credit to “junk”.
