Oil prices fall on rise in US drilling, strong dollar

Crude prices have gained some 13 percent since the Organization of the Petroleum Exporting Countries proposed on September 27 its first output cut or freeze in eight years to rein in a global crude glut. The deal, the first to cut output in eight years, will probably exempt some members, including Iran, Libya and Nigeria, which want to boost production after prolonged output disruptions. Saudi Arabia seems to be taking a lesson from a 1986 price-fluctuation event, when massive, unprecedented production cuts in response to increased production by non-OPEC countries failed to stabilize oil prices. That helped draw buyers in China, the people said.

While the oil market continues its rebalancing act, the IEA does not expect balance until next year: Even with tentative signs that bulging inventories are starting to decline, our supply-demand outlook suggests that the market, if left to its own devices, may remain in oversupply through the first half of next year.

“The fruits of that won’t be seen for a while because we’re still building and completing those projects that were sanctioned back when we had $100 oil”, said Forrest.

“Crude prices continue to be pulled in opposite directions, as potential OPEC coordination and a possible corresponding return of US shale output [dominate] the longer-term discussion”, said Robbie Fraser, commodity analyst at Schneider Electric.

After the kingdom pumped a record high 10.673 million bpd in July due to summer demand and requests from customers, its August output dropped to 10.630 million bpd.

With this glut in oil, many commentators are now asking if OPEC still matters.

For now, traders are betting on higher oil prices. High crude oil prices have a positive impact on crude oil and gas producers’ earnings such as Comstock Resources (CRK), Goodrich Petroleum (GDP), and Swift Energy (SFY). A higher oil price (above $50) might also be a reason for the United States to restart shale oil production which would raise supply.

“If we, Saudi Arabia, or Opec as a whole, cut production without the participation of major non-Opec members, we would be sacrificing revenues as well as market share”, he writes.

“The change in tone from the Saudis is important”, said Kurt Billick, the founder and chief investment officer of Bocage Capital LLC in San Francisco, which manages about $432 million in commodities equities and futures. The group gathers on November 30 for its policy meeting. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. The Reserve Bank of India, the country’s central bank, decided in early October to lower its policy interest rate by 0.25 percentage point to 6.25%.

Oil is the main export of Venezuela and provides most of the country’s foreign currency. “Prices were low because of oversupply; after announcement of the OPEC’s decision global crude prices have already started climbing”, said Raju Kumar, partner at EY, a consultancy.