Higher production caps for OPEC spell trouble for crude oil prices to come
Crude oil prices traded near their lowest levels in more than five week today, with the commodity falling sharply right after the first wave of news concerning OPEC’s Vienna meeting reached the sector. Traders of the fuel scrambled to sell after representatives from the group announced its decision to raise its production ceiling caps despite the fallen state of global demand. Further signs of economic deterioration in the euro zone also negatively affected both crude demand projections and the crude oil price chart.
Crude oil futures suffered little change on the charts after falling at a steep angle late during yesterday’s session. This fall marks the most severe tumble the commodity oil has taken since early September. The collective members of the Organization of Petroleum Exporting Countries convened in Vienna yesterday to discuss potential changes to the cartel’s production rates. The decision was to include such factors as Libya’s upcoming full-fledged return to the group’s ranks, as well as the crumbling state of demand from the debt-addled developed world. However, despite these economic red flags, OPEC’s ultimate decision was to raise its output levels to 30 million barrels per day, marking a staggering 11% increase from their current figures. The outcome of the meeting sent a wave of decline through the crude oil price charts, causing the commodity to retreat from its already shaky marks.
Crude oil prices took yet another hit that day, as investors first received reports that Italy’s five year bond yields have surged to their highest peaks in more than 14 years. The news seems to be the last proverbial nail in the economic coffin of the euro zone, which now looks poised to slide back into a recession, dragging demand stats for crude oil along with it.
Analysts have repeatedly stated over the course of the past few months that Europe and OPEC were the primary driving forces dictating the path of crude oil on the charts. With the leaders of the euro zone misaddressing the debt crisis raging in the region time and time again, the potential for a contagion of debt has now spiralled into a veritable certainty. Europe’s financial downfall will likely rattle the confidence of foreign economies, a lack of confidence that could and likely will severely undercut demand for crude oil and other raw commodities in the year 2012.
West Texas Intermediate crude oil prices for delivery in January rose a nominal cent to $94.96 per barrel in electronic trading on the New York Mercantile Exchange. Oil investments in the American contract fell more than 5% yesterday, bringing the commodity down to $94.95 per barrel, the lowest levels it has reached since early November. Futures are up 4% for the year overall compared to the 15% increase they posted in 2010.
Brent crude oil price charts for January settlement were similarly unchanged, with an arbitrary 6 cent rise bringing the benchmark to $105.02 per barrel on the ICE Futures Exchange in London. The European contract, which expires at the end of today’s session, retreated 4% yesterday. The contract for February, which is gaining the bulk of investor attention at the moment, lost $4.83 cents to settle at $104.25 per barrel. The spread between Brent and WTI currently sits at $10.07.
OPEC’s heightened production targets have temporarily overshadowed the debt crisis of the euro zone as the main culprit behind the fall of crude oil. The cartel, which supplies more than a third of the world’s supply of the fuel, raised its output ceiling yesterday, for the first time in more than three years. The change comes at a difficult time, as global demand is plunging, spurred on by Europe’s perpetual struggles and China’s inflation woes. The state of economic health of the largest crude oil consumer in the world, the U.S., while in the midst of recovery, also leaves much to be desired. OPEC’s decision is further complicated by the fact that the group did not as of yet delve into the production quotas of individual states, deeming adjustments for Libya’s return premature.
Crude oil prices in the U.S. received small levels of support on the domestic front, where the Energy Department reported almost 2 million barrels’ worth of declines in the nation’s stockpiles, marking the first major drop in supply in more than three weeks. Yet even those scraps of optimistic news carry a negative tone. The nation’s inventories were projected to lose more than 2.5 million barrels for the week, indicating that demand is faltering without respite.
Gasoline stockpiles gained nearly 4 million barrels over the week as well, bringing the total stock of the fuel to 418.9 million barrels. Forecasts from the Energy Departments relied on no more than 1.2 million barrels of increases. Both heating oil and various other distillates climbed as well, reiterating the worrisome news that despite futures increase-friendly winter months looming on the horizon, demand in the nation, along with crude oil prices are tumbling on less than satisfactory global economic cues.