No relief for crude oil prices, as OPEC elevates output levels to 30 million
Brent crude oil prices posted little in terms of viable change on the commodity market today, hovering around the $105 per barrel mark, after tumbling sharply during the previous session’s run. The benchmark commodity oil reacted severely to an announcement from OPEC that the group’s output levels for the first half of 2012 will be heightened to 30 million barrels per day. The controversial decision comes at a delicate and unsure time for global demand. With the debt crisis in Europe perpetually reaching new highs of concern, and China’s inflation rates approaching worrisome levels, overproduction on the part of OPEC, an organization that provides more than a third of the world’s fuel supply, could wreak havoc on the crude oil price chart. The situation was further worsened for the European contract when news reached the sector that Italy’s borrowing costs have skyrocketed to their highest levels in more than 14 years, elevating the chance for a recession in the euro zone from a mere possibility to an almost certainty.
Both Asian shares and base metals suffered losses similar to the plunges crude oil reported yesterday. The euro collapsed on the currency index today as well, sinking to its lowest in almost a year. Dollar-priced commodities such as raw metals and crude oil prices tend to mirror the regress of the euro on the charts, as foreign investors lose interest in trading when the greenback prospers. The markets are still reeling from Europe’s most recent failure to curb its debt crisis, and Italy’s surging bond yields could be the last nail in the proverbial coffin for the region. The debt-addled nation is now forced to pay 6.47% on its five year bonds, marking a record high yield in the history of the euro.
Crude oil price charts suffered their most acute damage for the week from the outcome of OPEC’s summit in Vienna, which took place yesterday. Though both investors and analysts were already bracing for a decision to elevate production rates from the prolific cartel, some hope was retained in the sector that the group would opt to trim down output in order to give global demand a chance to heal. However, representatives from OPEC stated for the record that with Libya’s full-scaled return to the market still unfeasible, the time is perfect for the group to amp production for 2012.
Brent crude oil prices for January settlement, a contract that expires today, rose 15 cents to $105.17 per barrel on London-based ICE Futures Exchange. The European contract fell $4.48 yesterday, when OPEC’s decision first reached the markets, marking the biggest loss for the commodity since the end of September.
West Texas Intermediate, Brent’s U.S. counterpart settled a nominal cent higher for the day at $94.96 per barrel in electronic trading on the New York Mercantile Exchange. The American benchmark crude prices retreated more than $5 when news of OPEC’s output raise broke out.
The uncertainty and growing anxiety surrounding Europe is also a major factor still keeping crude oil investments down. Though the region’s heads have made countless attempts to reach a clear and focused path of resolution in battling its massive debt, little has been produced from those meetings in terms of long run strategies. The commodity market jumped in the days preceding each meeting on speculation and newfound confidence, only to plunge back in the hours following. Signs of armour cracks in the last two remaining strong economies of Europe, Germany and France, are also worrying for traders and economists, as the two nations represent the last frontier a recession would have to take before the region’s economy collapses.
Yesterday’s session was a revelatory experience for many holding stakes in crude oil. Brent futures fell below their 300-day moving average of $107.08 and sank as low as $104.36 per barrel. The figure is the lowest front-month showing for the European contract since early October.
WTI crude oil prices suffered similarly, dipping below their 200-day moving average of $95.98 per barrel. Commodities such as crude oil tend fall sharply when technical barriers like moving averages are crossed, which is why its futures fell so steeply overnight.
The list of negative factors at play for crude oil seems to only be growing however. China’s most recent reports show a drastic fall in factory production, with plenty of pulled orders and a severe lack of new orders coming in. The data has further deepened belief that the nation’s manufacturers are struggling with dwindling global demand and increasingly limiting domestic credit. Though the showings of the HSBC flash manufacturing purchasing index still shows a rather modest contraction, unless global demand recovers, it could lead to a dour first quarter of 2012.
OPEC’s new standing 30 million barrels per day output cap marks the first time the bloc’s production ceilings have been tweaked in three years. Despite the fact that one the main purposes for the meeting were the escalating disputes surrounding supply policy details and Saudi Arabia’s involvement, the members of the cartel put off discussing individual production rates until Libya was fully prepared to enter the playing field. However, with the foundation beneath crude oil price charts increasingly shaky, OPEC’s meet failed to generate a potential response policy in case already damaged demand grows less quickly than estimated. What the cartel essentially did in the eyes of crude investor was boost supply to abnormal rates, with demand already floundering in the deep. Furthermore, OPEC left itself little in terms of an exit strategy in case the situation worsens beyond repair.