Global oil markets are in increasing disarray. Opec is split, with Saudi Arabia leading the way by cutting prices and pushing up production.
The big production surge in the US has been the major destabilising factor in helping undermine prices from mid year onwards.
Prices again slid last week and are now down 20% or more in the past few months.
In New York West Texas type crude futures for delivery in November rose 5c but eased in after hours trading to close at $US85.52 a barrel.
For the week, WTI crude was off 4.4%, its worst weekly performance, in percentage terms, since the start of the year.
In London, November Brent crude rose 16c, or 0.2%, to end at $US90.21 a barrel. Brent lost 2.3% on the week, its third consecutive weekly loss.
Brent crude, the global ‘oil marker price’ in fact fell to $US88 a barrel, the lowest it has been since the end of 2010 in trading, on Friday night before regaining the $US90 mark.
As prices have fallen, there has been mounting calls for Opec to cut output at its next meeting on November 27, to put a support line under prices.
But figures released on Friday showed Opec had lifted output by 402,000 barrels a day in September to 30.47 million barrels a day – the biggest monthly increase in almost three years.
And other figures showed that Saudi Arabia boosted output by 100,000 barrels to 9.7 million barrels a day last month. And it has cut the prices of some of its key grades in Asia in particular.
Libya is producing increasing quantities and the tensions in Iraq and Syria are not having any impact on prices, and nor is the situation in Ukraine.
As a result, Venezuela has started moaning (it’s broke and falling oil prices are worsening the situation, even though the currency has dropped 60% in the past year or so), so has Iran and several other high cost producers.
And, if anything Russia, a major producer, is doing it just as tough as it is being battered by a combination of falling oil prices, sanctions and a plunging currency and sharemarket.
The US is adding to the pain with oil from its new shale oil and gas fields surging onto US markets, depressing prices. That is having as much as an impact on Russia as the sanctions.
This rising production coupled with weak demand, helped by the weakness in the eurozone and Chinese economies, continues to push prices lower, helping to drag down other commodities.
As we have reported earlier, rising surpluses of grains and oil seeds have pushed the prices of wheat, soybeans, corn, etc lower. The prices of industrial metals, led by copper, are also falling.
Inflation is fading and deflation stalks the eurozone, Japan and, increasingly, China.
And with some of our biggest energy groups due to release third quarter production reports this week, investors should be alert should the share prices of Woodside and Santos come under more pressure.
According to the International Energy Agency, oil prices have been “weighed down by abundant supplies” and by “weakening oil demand growth”. The US has increased production, thanks to shale. This pushes down prices. Libyan oil is pumping once again.
US analysts point out that the US is starting to economise on fuel, with motorists using less than they have for the past nine years in a row.
This feeds into lower prices, which strengthen corporate profits for non-energy companies, and the dollar, which in turn helps undermine the prices of oil and other commodities such as copper and grains, which are also weak.
The Bloomberg industrial metals index is down 37% from its post GFC high (and 50% from its record in 2007).
Gold is down 38% since its high in 2011 and 11% since the top of its latest recovery early this year.
Senior Fed members have started warning that the rising US dollar is a ‘headwind’ for the American economy and that a slowing global economy will delay the move to start lifting rates.
A weak economy could end up supporting US shares because interest rates remain lower for longer and low rates and lower raw materials prices help boost profit margins.
But not for techs and nets which could see no benefit whatsoever over the next year or so. That’s why The Nasdaq is under pressure.
The US oil boom doesn’t help techs and nets directly except by giving under pressure consumers an income boost. But retailers and a host of other companies will be trying to grab that benefit.
