US light, sweet crude oil prices settled below $76/bbl Nov. 17 on the New York market and Brent oil prices settled below $80/bbl on the London market upon expectations that the Organization of Petroleum Exporting Countries will not act to reduce ample oil supplies worldwide.
OPEC is scheduled to meet in Vienna Nov. 27. Traders expect the cartel, especially Saudi Arabia, will refuse to reduce its production quotas despite falling prices.
Saudi and OPEC officials told The Wall Street Journal that Ali al-Naimi, the Saudi oil minister, is expected to say at the OPEC meeting that Saudi Arabia won’t cut production on its own.
Carl Larry, Frost & Sullivan director of business development for oil and gas, said OPEC is under pressure to change because the US is importing less oil thanks to increasing domestic oil production, largely from unconventional plays.
“Essentially they have lost their biggest customer (US) and are falling over each other to try to get to the next biggest consumer in line (China),” Larry said of cartel members. “If there’s any challenge with OPEC, it’s within OPEC.”
He noted that Japan appears to be falling into a recession, which means the whole Asian area comes under pressure.
“This will add to OPEC’s dilemma as it heads into its last meeting of the year,” Larry said. “Focus has shifted not only into those that can buy oil, but those that need to buy oil. The issue at hand with OPEC is not only about cutting production, but with who is willing to cut and if they can afford to cut.”
He noted that refinery maintenance will start soon in Europe, dampening oil demand even more.
“OPEC will need to consider whether or not they are flooding the market,” Larry said. “In the past, they have relied on the US or China to clear any oversupply, but the US continues to feed its own demand within North America, and China has yet to return to the glory days of double-digit growth.”
Elsewhere, traders are watching to see if Iran and Western world powers will reach a nuclear deal by a Nov. 24 deadline. Diplomats involved in the talks say that it is likely another deadline extension will be needed.
Energy prices
The New York Mercantile Exchange December crude oil contract fell 18¢ on Nov. 17, closing at $75.64/bbl. The January 2015 contract dropped 16¢ to $75.66/bbl.
The natural gas contract for December increased by 32¢ to a rounded $4.34/MMbtu. The cash gas price at Henry Hub, La., was $4.22/MMbtu, up 18¢.
Heating oil for December delivery was down 1.2¢ to a rounded $2.40/gal. Reformulated gasoline stock for oxygenate blending for December delivery fell 1.6¢ to a rounded $2.03/gal.
The January 2015 ICE contract for Brent crude oil was down 10¢ to $79.31/bbl. The February 2015 contract dipped by 11¢ to $79.94/bbl. The ICE gas oil contract for November dropped 25¢, settling at $697.75/tonne.
The average price for OPEC’s basket of 12 benchmark crudes on Nov. 17 was $73.90/bbl, up 43¢.
Contact Paula Dittrick at [email protected].
*Paula Dittrick is editor of OGJ's Unconventional Oil & Gas Report.
