In the latest Stock World Weekly, we discuss oil prices, OPEC, econo-politics and more; and Phil provides several trade ideas including one with USO. (Read the newsletter by clicking here and trying PSW free.)
Excerpt:
Reasons for the continuous drop in oil prices are clear: booming US production, declining demand in many regions including Japan, China and Europe, and strides in vehicle fuel efficiency. Fracking (hydraulic fracturing) and horizontal drilling techniques have enabled oil production from hard shale rocks in states such as Texas and North Dakota and have contributed to the US's move towards top world-producer status.
Results: The price of Brent has fallen over a third since June of this year.
Given the declining oil prices, it was perhaps surprising when representatives of the Organization of Petroleum Exporting Countries (OPEC) decided to keep oil production unchanged last Thursday (Thanksgiving). Many analysts expected OPEC to cut supplies to help boost prices. The announcement sent West Texas Intermediate (WTI) crude down to $66.15 per barrel and Brent crude down to $70.15 per barrel. As oil and oil stocks sold off, airliners celebrated with their stocks hitting record highs because oil is one of their largest expenses.
Clifford Krauss at the NY Times explains the surprising move–or non-move–by OPEC:
That elusive goal [of American presidents since the crippling oil embargo of 1973] may finally have arrived, at least for the foreseeable future, with the failure of Saudi Arabia and its 11 oil cartel partners in the Organization of the Petroleum Exporting Countries to agree to a production cut that would put a brake on plummeting crude prices.
[…]
The inability or unwillingness of OPEC to act showed that the cartel was no longer the dominating producer whose decisions determine global supplies and prices. Suddenly, the United States — which is poised to surpass Saudi Arabia as the world's top producer, possibly in a matter of months — is in that position, although the resiliency of that new command must still be tested.
“This is a historic turning point,” said Daniel Yergin, the energy historian. “The defining force now in world oil today is the growth of U.S. production. The outcome of the OPEC meeting is a clear indication that the oil exporters now recognize that this is a new market.” (Free Fall in Oil Price Underscores Shift Away From OPEC)
