Oil falls towards 2015 low on OPEC inaction, strong dollar

Oil prices edged closer to 2015 lows on Monday after OPEC’s meeting ended without a reference to its output ceiling and a stronger dollar made it more expensive to hold crude positions.

The Organization of the Petroleum Exporting Countries (OPEC) ended its policy meeting on Friday without agreeing to lower production.

For the first time in decades, oil ministers dropped any reference to the group’s output ceiling, highlighting disagreement among members about how to accommodate Iranian barrels once Western sanctions are lifted.

“A stronger dollar and the aftershock of Friday’s OPEC meeting are weighing on the oil market,” said Tamas Varga, oil analyst at brokerage PVM Oil Associates in London.

Brent crude prices LCOc1, the globally traded benchmark, were down 30 cents at $42.70 a barrel at 1046 GMT, close to their 2015 low of $42.23. U.S. crude CLc1 was trading at $39.41 a barrel, down 56 cents.

The dollar .DXY was up against a basket of currencies.

Analysts at Barclays said the lack of an OPEC production target in its written announcement was a sign of discord.

“Past communiques have at least included statements to adhere, strictly adhere, or maintain output in line with the production target. This one glaringly did not,” they said.

OPEC’s output of more than 30 million barrels per day (bpd) has compounded an oil glut, pushing production 0.5 million to 2 million bpd beyond demand and putting many producers under pressure, especially small-sized U.S. shale drillers that have piled up large amounts of debt.

Analysts at Commerzbank said any recovery in oil prices would be dictated not by OPEC but by rising demand and a fall in production outside of the group.

“Rising oil prices next year will not depend on OPEC reaching immediate agreement or on a return to price control, as we expect prices to increase primarily on the back of continued robust demand growth and a decline in non-OPEC oil production,” they said in a report.

Saudi Arabia, the world’s biggest oil exporter, is banking that producers of unconventional oil to buckle for output to fall.

Amin Nasser, Chief Executive Officer of Saudi Aramco, said at a conference in Doha on Monday he hoped to see oil prices adjust at the beginning of next year as unconventional oil supplies start to decline.

Others disagreed. Patrick Pouyanne, Chief Executive Officer of French oil company Total, said at the same event that he did not expect prices to recover next year as production growth was set to outstrip a rise in demand.

“It is not unreasonable to assume that downward pressure on prices will remain for the foreseeable future, as it will take time for low prices to materially scale back production,” said analysts at Cenkos Securities.

In a sign investors expect prices to remain weak over years to come, WTI forward contracts out to 2024 have dropped below $60 a barrel.


One thought on “Oil falls towards 2015 low on OPEC inaction, strong dollar

  • March 4, 2016 at 10:28 pm

    By my calc in 2006 Iraq used 138.85 kb/d for power generation, 26.05% of 532.99 kb/d total (data from World Bank and BP). KSA for the same year was 22.57% of their total, with strnog seasonality apparent; I was wondering if production is impacted by that in some fashion – KSA burn raw crude in summer for peak A/C demand, perhaps Iraq is effected in the same way, or there is a correlation somewhere in there.Attempting to mess with the JODI data I’m daunted both by the size of their World.csv – too big to open in any spreadsheet program, you have to use a text editor and break it up into manageable chunks – and the cryptic acronyms (where the hell is “INDCONC”?). Rembrandt has obviously done all this homework already, I’ll ask him for help.If you’re interested, I’ve a spreadsheet with this World Bank WDI data for consumption of oil for electricity: , with some additional speculative bits about consumption by nation, including some a few years ago. He also quoted you in 2005 quoting Henry Groppe that something like 20 mb/d is being gobbled up by heat and electricity, which, if true, would mean that all this talk about cars is missing the forest for the ocean, let’s say…mentioned some of this in a forthcoming TOD post.


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