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Dec 11 2014, 9.20am GMT


OPEC’s new forecast on lower oil demand pushes oil prices to 5 year lows at nearly $60.

Since mid-June, oil prices have fallen by 43%, with the latest day slump of 5% taking oil down close to the $60 mark.

The perfect storm of a slowdown in world recovery, OPEC’s lower forecast on oil demand, and the building production of US shale energy, is drowning oil prices.

OPEC announced in its latest monthly report that crude demand would drop to 28.92m barrels a day in 2015, the lowest figure recorded since 2004, and a fall of approximately 300,000m barrels a day from previous estimates. In Vienna last month, OPEC had agreed not to curtail production giving an output target of 30m barrels per day; the latest figure falls below even this figure. The surplus calculates at 1.13m barrels a day in 2015, and 1.83m barrels a day in the first half.

OPEC’s new stance on oil seems to originate from Saudi as the FT reports Ali Al-Naimi, the Saudi oil minister saying, “Why should I cut production? This is a market and I’m selling in a market. Why should I cut?”

With no remission for oil prices on the horizon, the double jeopardy of world economic growth aligned with demand for oil comes into play as one reflects the other.

On 8 December, China as one of the largest importers of hard commodities, announced low import figures recording November’s crude oil imports falling to $16.4bn from $17bn in October, which itself was down from $20.5bn in September.

On 24 Nov, oil imports to the US from OPEC were close to a 30 year low as they battle on the energy market with US domestic supplies from hydraulic fracking, now at a high. And 2 days later came the negative data from the US with unemployment claims up 21K TO 313K, core durable goods orders down -0.9% versus forecast of 0.5%, personal spending was at 0.2% versus forecast 0.4% and the same for personal income, and home sales were down to 471K versus expectations of 458K.   

Yesterday saw weekly US Crude Oil inventories at +1.454M above the negative forecast of -2.240M and previous -3.689M. The world-wide surplus has led to slower demand for production, and though this may be good for consumers and fuel-dependent industries such as car manufacturers and airlines, it is a negative factor for economic growth and oil producing companies.

With large companies’ shares, such as BP, ExxonMobil, Chevron and Petrobras being radically affected by oil prices, indices are falling. Share drops are also combined with fears raised from political tensions such as Greece’s snap election announcement yesterday and Japan’s up-coming election.

ExxonMobil down 3%; Chevron fell 3.4%; Petrobras fell 4.9%

Early today, however, there has been a slight correction in oil and equities taking oil to $61.5, and after a poor Asian session overnight, the Japan225 [Nikkei] rose 1.2% before close and USA500 [S&P500] may regain its 1.6% loss.

MT4 chart: WTI Oil

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MT4 chart: ExxonMobil

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