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Petroleum industry

Oil Prices Plummet as OPEC's Production Cuts Falter

Strategic Insights

— 1 min read

Oil prices tumbled Tuesday as the US Energy Information Administration (EIA) expressed doubts about OPEC's ability to implement production cuts of 1 million barrels a day. The head of the EIA, Guy Caruso, stated that he didn't believe many OPEC countries would be able to contribute to a cut in production, and that a full million-barrel cut was unlikely. This skepticism was reinforced by reports from traders in Europe and Asia, who said that Saudi Arabia, the largest producer in OPEC, had kept November volumes to oil majors steady.

Key Takeaways:

  • The EIA doubts OPEC's ability to implement production cuts of 1 million barrels a day, with Guy Caruso stating that it would be less than 1 million barrels.
  • Saudi Arabia, the largest producer in OPEC, has not committed to production cuts, and its November crude oil allocations to refiners in Europe are unchanged.
  • Traders in Europe and Asia report that Saudi Aramco, the state-owned oil company of Saudi Arabia, plans to keep supply to oil majors and Asia steady.
  • Oil prices have fallen more than 20% since hitting an all-time intraday high of $78.40 on July 14.
  • The locals (independent traders on the Nymex floor) are looking at $59 a barrel support, with Aaron Kildow, a broker at Prudential Financial in New York, stating that if prices fall through that level, OPEC will need to come out with a strong statement to keep prices from going lower.
  • French bank Societe Generale reports that Saudi Arabia's silence on production cuts indicates that the kingdom is not keen to support prices above $60 a barrel.

Statistics:

  • Oil prices have fallen 1.7% to $58.94 a barrel.
  • Brent crude has fallen by $1.07 to $59.47 a barrel.
  • The front-month November light, sweet crude contract on the New York Mercantile Exchange has fallen by $1.02.
  • November heating oil has fallen by 3.64 cents to $1.6933 a gallon.
  • Front-month unleaded gasoline has fallen by 1.54 cents to $1.4795 a gallon.

Sources:

  • Dow Jones Commodities News via Comtex
  • Energy Information Administration (EIA)
  • Peter Donovan, Vice President, Vantage Trading
  • Guy Caruso, Administrator, EIA
  • Aaron Kildow, Broker, Prudential Financial
  • Frederic Lasserre and Deborah White, Analysts, Societe Generale
  • Matt Chambers, Dow Jones Newswires

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