Oil Prices: Lower For Longer?

Saudi Arabia meanwhile continues to hold out in terms of market share, taking back its position from Russian Federation in October as the largest supplier of crude oil to China, according to Beijing’s latest customs administration report. What will happen today?

U.S. West Texas Intermediate (WTI) crude futures fell US$1.26 a barrel to US$40.64 a barrel by 0418 ET.

Christine Lagarde, managing director of the global Monetary Fund (IMF), said this month that Gulf countries should introduce a regional value-added tax (VAT) as soon as possible to raise revenues at a time of low oil prices.

“News of a military jet crashing in Syria is a reminder that there is still substantial risk in the Middle East”, said Bjarne Schieldrop, the Olso-based chief commodities analyst at SEB.

Brent futures for January contract also dropped 60 cents, to $44.06 a barrel, after it ended on Friday at 48 cents up at $44.66 per barrel. Also copper and oil tend to be affected by similar economic factors, and where a strong USA dollar keeps oil and gold prices low, oil and metals in general have a positive correlation fairly due to inflation.

Venezuela suggests that crude oil prices could fall to $25 per barrel unless OPEC (Organization of the Petroleum Exporting Countries) curbs the crude oil production.

Oil prices have halved over the last 12 months after OPEC made a decision to maintain its production levels, or even increase them, to retain market share, in part by forcing higher-cost producers elsewhere to cut output.

On Friday, oil prices turned higher after industry group Baker Hughes reported that the US oil rig count fell by 10, sparking a few optimism that oil production in North America is tapering down. USA crude futures climbed 0.4% ($.17) to reach $42.07 a barrel. Speculators turned the most bearish ever on gasoline and diesel as USA refiners increased production. Brent crude last traded at that level in December, days after Opec gathered in Vienna and opted to resist calls from members including Venezuela to cut output.

But prices turned lower again as oversupply concerns remained a factor for oil markets.

“That seven-month high in the dollar flashed a warning sign in people’s faces that the dollar is appreciating”. We need to send to the market a signal of stabilization, and that signal of stabilization is not what we are doing now…