1. Prices continue to fall
Oil prices have fallen for the last four trading sessions. Monday’s drop was precipitated by reports from China that domestic demand for oil had fallen sharply. On Tuesday and Wednesday a continuing spate of bad economic reports sent prices still lower, although the pace of the decline seemed to be moderating. Oil closed on Wednesday at $53.62 a barrel, but fell still lower in after-hours trading.
The weekly stocks reports has US oil consumption over the last four weeks 7 percent lower than last year, and crude inventories continuing to climb by 1.6 million barrels. Although gasoline demand is only down by 2.2 percent over last year, jet fuel demand now is down by an impressive 20 percent as airlines cut back flights and ground their inefficient aircraft.
Gasoline prices continue to plunge in the US with the retail average now at $2.04 a gallon and scattered reports of gasoline selling for $1.50. When adjusted for inflation, gasoline is now cheaper than when it was selling for 17 cents in 1931, 20 cents in 1944 and 30 cents in the early 1950’s.
The rapid and unchecked fall in oil prices now has commentators such as the CEO of a Chinese oil company and German bank analysts talking about $40 oil in the spring. Faith in OPEC’s ability to reverse the decline through further production cuts seems to be slipping.
2. The OPEC meetings
OPEC seems to be in more disarray than usual this week. After agreeing to hold an emergency session in Cairo on November 29th, contradictory statements by various oil ministers have started to emerge. Some say that a production cut will be decided upon at the Cairo meeting while others are saying that it is too early to make a decision and the next cut will come at the December meeting in Oran. One is saying that there will be small cuts at both meetings.
Talks with non-member oil producers, probably the Russians, are said to be on-going. It is hard to imagine any other major non-OPEC oil exporter such as Canada, Mexico, or Norway participating in an agreement to cut production along with OPEC.
