Oil Falls to Near Seven-Year Lows After OPEC Meeting
December 7, 2015 (Source: WSJ) — Oil prices dropped to near seven-year lows Monday as investors continued to digest the Organization of the Petroleum Exporting Countries’ decision to continue pumping crude at near-record levels into an already oversupplied market.
OPEC said at a meeting Friday that it will maintain its current production levels, which exceed the group’s output target of 30 million barrels a day.
OPEC members have increased their production this year, helping keep prices near the lowest levels since the financial crisis, and output in non-OPEC countries, including the U.S., has also remained high.
OPEC’s production could rise further in 2016 if sanctions are lifted on Iran, allowing the country to increase its exports.
OPEC’s decision underscored that the group is sticking to its year-old strategy of battling for market share rather than cutting production to force prices higher, as the cartel has done during past downturns.
“OPEC will not and cannot do the balancing of the market,” because its production accounts for less than half of global output, said Bjarne Schieldrop, chief commodities analyst at SEB Markets, in a note. “Any tiny risk that OPEC actually might do something during the next 6 months is completely off the table after Friday’s meeting. With this risk out of the picture, the oil price declines further.”
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Light, sweet crude for January delivery recently traded down $1.76, or 4.4%, to $38.20 a barrel on the New York Mercantile Exchange, on track for the lowest settlement since February 2009.
Brent, the global benchmark, fell $1.55, or 3.6%, to $41.46 a barrel on ICE Futures Europe, the lowest intraday level since March 2009.
A stronger dollar and warm weather forecasts also weighed on oil prices Monday.
The WSJ Dollar Index recently traded up 0.6%. A stronger greenback makes dollar-priced oil more expensive for buyers using foreign currencies.
In addition, weather outlooks released Monday showed warmer-than-average temperatures across much of the U.S. in the next two weeks. Cold weather in the winter typically increases demand for heating oil, and mild temperatures have reduced expectations for consumption.
Gasoline futures fell 3.1% to $1.2306 a gallon. Diesel futures fell 3.6% to $1.2947 a gallon.
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