London crude traded below $80 a barrel on Wednesday for the first time since Septermber 2010, closing at $80.83, also a four year low. New York oil fell to a $77.18 close leaving the WTI/Brent discount at $3.20. The decline came despite the announcement that OPEC cut prodution by 226,000 barrels last month. Much of this cut came from the Saudis who cut production anywhere from 69,000 b/d to 150,000 b/d – depending on whose figures you believe. This decline was offset by the news that Libya’s largest oilfield is now producing 100,000 b/d, still well below capacity, after having been shut down by an attack last week.
It is generally believed by the markets that OPEC is not going to make any major reduction in its production at next week’s meeting – therefore the continuing price drop. Oil ministers from all the major gulf oil producers who could afford to make a cut have now been heard from and they are unaminous in saying that no cut is necessary.
The IEA says that if oil remains around $80 a barrel, the Agency expects a 10 percent reduction in US shale oil drilling next year. Industry officials, however, continue to maintain that drilling will continue as long as oil holds around $80 a barrel or higher. There are, however, scattered reports of cutbacks in US shale drilling already occurring. Officials from BP and Total announced that $80 oil will not slow their drilling program next year.
In its monthly short-term outlook released on Wednesday, the EIA now expects that US crude prices will average $77.75 next year, which is $17 a barrel lower than it was saying last month. The EIA expects the Saudis to hold production above 9 million b/d next year.
The US stocks report is delayed this week due to the holiday, but Wall Street expects that it will report there was a 1.1 million barrel jump in US crude inventories last week.
US natural gas futures fell by some 35 cents per million BTU’s this week to close at $4.17 on forecasts that warmer weather is in store for the US next week
The major political news of the week was the announcement that the US and China have agreed on a joint plan to curb greenhouse gas emissions which could serve as the basis for an international agreement. The announcement came as a surprise to many who had been expecting much weaker proposals and is likely to face stiff opposition in the US Congress. Some environmentalists, however, are already questioning whether the plan would cut enough emissions to stem climate change.
The Iranian nuclear negotiations seem to have reached another impasse, increasing the liklihood that the talks will continue beyond the Nov 24th deadline.
Russia implemented a floating ruble on Monday as its economic situation continues to deteriorate.
