OPEC Crude Oil Prices into $30s

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  • OPEC Crude Oil Prices into $30s

(Bloomberg) – Crude oil prices from OPEC members slid below $30 per barrel. Increased pumping by OPEC as Chinese demand appears to be slackening could drive oil to the lowest prices since the peak of the financial crisis.

The daily basket price of crudes produced by the 13 members of the Organization of Petroleum Exporting Countries fell to $29.71 a barrel on Wednesday, down from $31.21 the previous day, the group said in an e-mailed statement. That’s the lowest level since February 2004, according to data compiled by Bloomberg.

Oil has slumped further this week as a selloff in Chinese markets added to concerns about the strength of the nation’s economy. WTI crude, the U.S. benchmark, has had its worst-ever start to the year, deepening the economic pain for OPEC’s weaker members such as Venezuela.

Oil's collapse has been rapid and outpaced the predictions of most Wall Street forecasters. One factor has been that the weaker prices are taking longer to impact U.S. shale producers than previously thought. OPEC has also been pumping more than it has in several years, and reported a 2.87 million barrel a day global oversupply in the second quarter.

OPEC on Tuesday upped its forecast of oil supply from nonmember countries in 2015. Oil prices have been more unpredictable because of the unknown factors around the impact on U.S. shale production, a relatively new phenomenon.

Saudi Arabia -- OPEC’s biggest producer -- has led the group for just over a year in a strategy to defend its market share and let prices fall in a bid to push higher-cost rivals such as U.S. shale oil explorers out of the market. The policy has proven costly and slow to bear fruits. While U.S. output has fallen 4.1 percent from its June peak of 9.6 million barrels a day, OPEC members lost about $500 billion in revenue last year, according to the International Energy Agency.

OPEC, which supplies around 40 percent of the world’s oil, left its strategy unchanged at its December meeting in Vienna, effectively abandoning any limits on its production.

While Saudi Arabia’s budget has room to withstand a long period of low oil prices thanks to its $627 billion in net foreign assets, Venezuela is facing the deepest recession in its history because oil accounts for 95 percent of its exports. The International Monetary Fund estimates Venezuela’s gross domestic product contracted 10 percent last year.

Iran is supposed to wait for congressional approval of the nuclear deal before it moves to return its oil exports to world markets, but Kilduff said Iran could move sooner. Iran has an estimated 40 million barrels of oil stored in tankers, and Kilduff expects Iran to be aggressive in selling it.

Saudi Arabia might admit defeat and consider reversing its strategy if low prices haven’t led to significant cuts to non- OPEC supply by 2018, Nitesh Shah, a commodities strategist at ETF Securities, said in a note.

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