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Oil Smashed As Saudi Production Cuts Fail to Reverse Price Declines

The end of OPEC

Silhouette three oil pumps

I have been arguing for awhile that the OPEC oil cartel is increasingly irrelevant as US oil shale comes online and forces them to compete in a freer market.

Saudi Arabia has been worried about the declining price of oil and the massive oil glut on the market, and worked with Russia to implement production cuts. Those cuts are failing to make a dent as the wider realities of the oil market – a weak global growth environment, spiking US oil production, and interest rate cuts from the Fed – make the Saudi production cuts a drop in the bucket:

Oil futures tumbled on Tuesday, with a more than 7% loss sending benchmark U.S. crude prices to their lowest finish in nearly 16 months, as concerns over a potential global supply glut rattled the market.

Losses for oil intensified in late-morning dealings after it was reported that Russia was increasing its output to 11.42 million barrels a day this month, said David Madden, market analyst at CMC Markets UK. “That would be a record, if it turns out to be true.”

“Major oil producers can talk about coordinated production cuts all they want, but at the end of the day they usually pursue their own interests,” he said. Members of the Organization of the Petroleum Exporting Countries and some nonmember allies agreed earlier this month to cut production by 1.2 million barrels a day, but the change doesn’t go into effect until the start of the new year.

“As usual, oil markets are all about the basics of supply and demand, so when excess amount crosses paths with a bearish global growth outlook, it provides an exceedingly bearish signal for oil prices which have only one place to go, and that’s down,” he said in a daily note. With the “market struggling for direction, oil prices were very prone to shifts in risk aversion, but when global growth concerns trigger risk off it’s hugely negatively impactful for oil prices.”

 
Doomberg

Written by Doomberg

I am Doomberg, one of the original founding members of Sparta Report, and have been here since the beginning. I am an insatiable news junkie and enjoy reading and writing about the US territories, the Caribbean, video games, smartphones, and of course conservative politics in general.

I also really like pictures of gas stations and claim full responsibility for the silly gas station motif. I'm presently trapped behind enemy lines in a blue state with no hope of escape! The ride never ends.

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