LONDON (Reuters) - Oil hit four-year lows around $70 a barrel on Thursday and commodity currencies were sent tumbling, as OPEC resisted the temptation to cut back production following the more than 30 percent plunge in prices since June.
Asked whether the oil producer group, which provides around a third of world supply, had decided not to reduce production, Saudi Arabian Oil Minister Ali al-Naimi told reporters: "That is right."
The meeting had lasted over five hours and as the decision emerged both Brent and U.S. crude prices were sent sliding as traders saw it as sign that OPEC members were effectively now in price war with each other.
Brent dropped to $71.58 and U.S. crude sank to $68.20 a barrel as both headed for $5 drops on the day, their biggest falls since May 2011. [O/R]
"Oil prices are now completely in the hands of the market," Dominic Chirichella, director of New York-based Energy Management Institute, told Reuters Global Oil Forum.
Europe's stock markets extended their gains on the day to 0.25 percent as the prospect of cheaper energy costs for both firms and strapped consumers added to Wednesday's signals from the European Central Bank that it is edging closer to government bond buying.
The case for ECB action had been underlined earlier as Spain and Germany both reported weaker-than-expected inflation figures. It points to another decline in the overall euro zone reading when it is published on Friday.
Lending to euro zone households and companies also fell again.
Speaking in Finland, ECB head Mario Draghi said the euro zone needs a "comprehensive strategy" including reforms by governments to get it back on track. Last week, Draghi in effect backed U.S.-style quantitative easing.
The comments and the data lowered the euro to $1.2463 and triggered a new set of record-low bond yields for the euro zone's biggest economies, with France's 10-year yields dropping below 1 percent for the first time.
Most market action, however, centered on the slide in oil.
Oil-rich Norway's crown hit a three-week trough of 8.6530 crowns per euro, Russia's rouble took another dive and Nigeria's naira continued to fall despite an 8 percent devaluation on Tuesday.
The huge slump in oil prices since June had made OPEC's meeting its most closely watched in decades. One member of the cartel told Reuters it will next meet in June.
Besides pushing down inflation in Europe, already close to deflation, the fall in prices is also hurting the economies, currencies and financial markets of many producer countries.
Ehsan Ul-Haq, a senior oil market consultant at KBC Energy Economics, in Vienna for the OPEC meeting, said he expected oil prices to now stay under $80 a barrel for the foreseeable future with a chance they could go below $70.
While the plunge in prices is bad for oil producing countries, it is generally viewed as a positive for global growth as it makes energy cheaper giving consumers more money to spend and reducing costs for firms.
Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.3 percent. Shanghai shares hit a three-year high, extending a rally that began after China cut interest rates last week. They are up 8.2 percent so far this month.
"The rate cut clearly showed the Chinese authorities are very much keen to support the economy. So even though Chinese economic data has been pretty weak, investors are convinced that there will be no hard landing," said Naoki Tashiro, the president of TS China Research.
Japan's Nikkei shed 0.8 percent as the yen recovered some ground against the dollar. The index has gained 5.1 percent so far this month, becoming the second-best performing market in the region after China.
Though trading was lighter than usual due to the Thanksgiving holiday in the United States, the dollar crept up as it fetched 117.54 yen, off last week's seven-year high of 118.98 yen, but still up more broadly.
It also saw gold, which is priced in dollars, dip for a second session as it held below $1,200 an ounce.
Outflows resumed from the top bullion exchange-traded fund, while a referendum in Switzerland on Sunday also kept the market cautious: a "yes" vote would force the Swiss central bank to buy about 1,500 tonnes of gold in coming years, analysts said.
(Addtional reporting by Hideyuki Sano in Tokyo; Editing by Andrew Roche)
The thing about larger vehicles like 1/2 ton trucks is that the tank is on the same side that you put the gas into. The other side has the same space that has nothing there or at least mine does.
US Gov may end up in shale investment, just like UK.
I don't see that happening. The only thing that could possibly happen is an import tariff that would hold the price at say $75. Anything below that the tariff would kick in. That would help the drilling and production and cut the deficit at the same time. But that would be too simple of an answer.
Saudi stock indexes crashing makes me wonder if they'd accounted for that?
Joe, I do not see an import tariff in this global economy, especially with an Asian trade pact still in the works. However, I think it to be a good idea. As a TMS landowner, I would prefer to see the tariff set at $80.00 -), I am sure the law of unintended consequences would show my enthusiasm for an import tariff to be ill informed.
I remain concerned about the impact of a slow down in shale drilling on U.S. jobs. As I saw in the "hot" days of the Haynesville, shale drilling creates jobs directly and indirectly.
It seems to me that the stock market is not responding happily to the OPEC decision.
I don't know about $35 oil, but was reading an article yesterday out of Houston
referring to the current stock sell-off, a 20% cut in high-end area home prices,
A few notable shale oil companies with Houston addresses:
Goodrich Petroleum (GDP) – Down 34 percent Friday
Sanchez Energy (SN) – Down 29 percent Friday
Oasis Petroleum (OAS) – Down 27 percent Friday
And some other notable Houston companies:
British Petroleum (BP) – Down 5.4 percent Friday
Apache Corp (APA) – Down 11.2 percent Friday
Transocean (RIG) – Down 9.7 percent Friday
Baker Hughes (BHI) – Down 8.9 percent Friday
Reuters: Saudi War On Shale Confirmed
This is what I've said all along. The Saudis are trying to cut the shale exploration out of the market. At the same time it will be interesting to see how the speculators come out of this that bought in on the upside and created the bubble. That bubble will not go back to $100 any time soon. So the Saudis may have shot themselves and all of OPEC in the feet so to speak.
The Saudis will have to continuously sell there oil to us at prices cheaper than we can produce it ourselves, otherwise their ploy will not work. Since we don't export shale onto the open market now the only market share they have really lost too shale oil is the loss of oil sales to the U.S. As soon as demand increases, the price will rise and we will be back in the shale business, for domestic use anyway. Shale development is stifled but OPEC can't keep prices low forever.
IMO the Saudis aren't attempting to kill unconventional US oil because they know they can not. At least not the portion that matters. The majority of unconventional oil comes from the Bakken and Eagle Ford which are capable of profitability at less than $50/barrel. All those other plays contribute a small fraction of US shale oil production. Some like the LSBD really don't produce enough to even be a blip on the radar. The most expensive plays are most vulnerable and they do not represent enough production to kill US unconventional oil. Most will resume development as crude prices rebound in the future. Those that require >$100/barrel, such as tar sands, may not return for a very long time.
The US buys very little oil from Saudi Arabia currently so we are not impacting their market share with our growing domestic production which, after all, can not be exported. That whole argument is a straw man. The Saudis are allowing the price to fall simply because the only way to avoid it is to curtail their production and loose market share to their competitors for the Far East market. As long as their OPEC brethren will not cut their production, Saudi has no rational reason to cut theirs. Any other consequences to global production are simply collateral damage some of which they likely considered lagniappe. All those other interpretations provide energy reporters something to write about to fill column inches. I'm sure they are appreciative.
Which Oil Producing Region Loses the Most From Low Prices? oilprice.com
By Nick Cunningham | Mon, 01 December 2014 23:24 | 0
Another victim of low prices could be U.S. shale. There is a lot of variation between companies and between regions in terms of who can continue to profitably produce oil from U.S. shale. For example, many Bakken producers can turn a profit at just $42 per barrel.
But an estimated 4 percent of U.S. shale production is unprofitable with oil at $80 per barrel. These are places that operate on the margins in high cost environments – places like the Mississippi Lime formation in Oklahoma or the Tuscaloosa Marine Shale in Louisiana. Companies investing in these formations will see losses pile up, and they will be forced out of the market with prices low.
With WTI now dropping through the $70 per barrel threshold, more regions could become unprofitable. Parts of the Permian basin in Western Texas or the Niobrara in Colorado could begin to look less viable.
Still, a study from IHS finds that 80 percent of U.S. shale oil production in 2015 could breakeven at prices between $50 and $69 per barrel for WTI. That means that there will still be a lot of projects out there that oil companies will pursue, but with each passing day as oil prices tumble, more and more could be scrapped.
Link to complete article: http://oilprice.com/Energy/Crude-Oil/Which-Oil-Producing-Region-Los...
Hannie, no I'm saying that SA doesn't perceive US shale oil as a threat for the reasons posted above. The have little US market share so they are not competing directly with our domestic production. And the US does not export to their prime markets (or anywhere for that matter at this time). The Saudis don't produce a lot of natural gas and what they do they use domestically and don't export any appreciable amount so our impending liquification is no threat. US exports, if indeed crude export is allowed, may have some relevance depending on where it goes to compete. IMO the Saudis don't make decisions on what might happen in the future. They have sufficiently strong reasons for their current actions regardless of what happens to US shale oil production or to the other members of OPEC.