Oil prices collapse as OPEC sees production outpacing demand

Will Gas Prices Go Up? Saudi Arabia to Cut Production

Oil prices collapse as OPEC sees production outpacing demand

In crude oil alone, OPEC expects USA producers to boost output to 11.43 million bpd in the last quarter of 2018 and continue ramping up production until it hits 12.5 million bpd at the end of 2019. The decline in prices continued last week after the United States said it would let eight countries keep importing Iranian oil.

Oil prices have plunged more than $20 a barrel since the start of October, when Brent crude rose to almost $87 a barrel and United States benchmark West Texas Intermediate (WTI) traded around $77.

Saudi Energy Minister Khalid al-Falih said on Monday OPEC agreed there was a need to cut oil supply next year by around one million barrels per day from October levels to prevent oversupply.

Crude prices are influenced by several variables such as speculation on oil trades (known as futures), inventory levels, geopolitics, global economic growth and the relationship between global supply and demand. Hedge funds and other money managers have reduced their long position in oil contracts to their lowest since August of 2017 last week.

Oil markets are being pressured from two sides: a surge in supply and increasing concerns about an economic slowdown, as seen with the economic contractions in powerhouses Japan and Germany during the third quarter as well as in China's falling auto sales.

Brent oil prices have plunged 25 per cent since reaching a four-year high of more than $86 per barrel in early October.

Oil prices have dropped significantly in recent weeks, with the USA benchmark price dipping below $60 per barrel, according to Market Watch.

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President Donald Trump has tweeted that they shouldn't cut production, setting up a standoff between the USA administration and OPEC before it meets in Vienna on December 6.

Saudi Arabia is the largest member of the Opec cartel of Middle East and African oil producers. Those lower prices likely quieted Trump, but production cuts could again boost prices at the pump.

Merrill Lynch says US crude production will break through 12 million bpd in 2019, supporting oil exports to the rest of the world.

"This tweet certainly did not help prices", ING commodities strategist Warren Patterson said.

Brent dropped US$3.25 a barrel, or 4.5%, to a low of US$66.94 as of 10.40am EST (1540 GMT).

On Monday, the rupee settled at 72.89 per dollar, showing a loss of 39 paise or 0.54 per cent over the last close due to a rise in oil prices after Saudi Arabia announced plans to cut production and the dollar strengthened in global markets.

Most analysts expect USA output to climb above 12 million bpd within the first half of 2019.

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