Crude Crash Set To Continue After Arab Emirates Hint $40 Oil Coming Next

Crude Crash Set To Continue After Arab Emirates Hint $40 Oil Coming Next (ZeroHedge, Dec 14, 2014):

In space, no one can hear you scream… unless you happen to be Venezuela’s (soon to be former) leader Nicolas Maduro, who has been doing a lot of screaming this morning following news that UAE’s Energy Minister Suhail Al-Mazrouei said OPEC will stand by its decision not to cut crude output “even if oil prices fall as low as $40 a barrel” and will wait at least three months before considering an emergency meeting.

In doing so, OPEC not only confirms that the once mighty cartel is essentially non-existant and has been replaced by the veto vote of the lowest-cost exporters (again, sorry Maduro), but that all those energy hedge funds (and not only) who hoped that by allowing margin calls to go straight to voicemail on Friday afternoon, their troubles would go away because of some magical intervention by OPEC over the weekend, are about to have a very unpleasant Monday, now that the next oil price bogey has been set: $40 per barrell.

Luckily, this will be so “unambiguously good” for the US consumer, it should surely offset the epic capex destruction that is about to be unleashed on America’s shale patch, in junk bond hedge funds around the globe, and as millions of high-paying jobs created as a result of the shale miracle are pink slipped.

According to Bloomberg, OPEC won’t immediately change its Nov. 27 decision to keep the group’s collective output target unchanged at 30 million barrels a day, Suhail Al-Mazrouei said. Venezuela supports an OPEC meeting given the price slide, though the country hasn’t officially requested one, an official at Venezuela’s foreign ministry said Dec. 12. The group is due to meet again on June 5. 

“We are not going to change our minds because the prices went to $60 or to $40,” Mazrouei told Bloomberg at a conference in Dubai. “We’re not targeting a price; the market will stabilize itself.” He said current conditions don’t justify an extraordinary OPEC meeting. “We need to wait for at least a quarter” to consider an urgent session, he said.

And with OPEC’s 12 members pumped 30.56 million barrels a day in November, exceeding their collective target for a sixth straight month, according to data compiled by Bloomberg. Saudi Arabia, Iraq and Kuwait this month deepened discounts on shipments to Asia, feeding speculation that they’re fighting for market share amid a glut fed by surging U.S. shale production.

The above only focuses on the (unchanged) supply side of the equation – and since the entire world is rolling over into yet another round of global recession, following not only a Chinese slowdown to a record low growth rate, but also a recession in both Japan and Europe, the just as important issue is where demand will be in the coming year. The answer: much lower.

OPEC’s unchanged production level, a lower demand growth forecast from the International Energy Agency further put the skids under oil on Friday, raising concerns of possible broader negative effects such as debt defaults by companies and countries heavily exposed to crude prices. There was also talk of the price trend adding to deflation pressures in Europe, increasing bets that the European Central Bank will be forced to resort to further stimulus early next year.

And while the bankruptcy advisors and “fondos buitre” as they are known in Buenos Aires, are circling Venezuela whose default is essentially just a matter of day, OPEC is – just in case its plan to crush higher cost production fails – doing a little of the “good cop” routing as a Plan B.

According to Reuters, OPEC secretary general tried to moderate the infighting within the oil exporters, saying “OPEC can ride out a slump in oil prices and keep output unchanged, arguing market weakness did not reflect supply and demand fundamentals and could have been driven by speculators.”

Ah yes, it had been a while since we heard the good old “evil speculators” excuse. Usually it appeared when crude prices soared. Now, it has re-emerged to explain the historic plunge of crude.

Speaking at a conference in Dubai, Abdullah al-Badri defended November’s decision by the Organization of the Petroleum Exporting Countries to not cut its output target of 30 million barrels per day (bdp) in the face of a drop in crude prices to multi-year lows.

“We agreed that it is important to continue with production (at current levels) for the … coming period. This decision was made by consensus by all ministers,” he said. “The decision has been made. Things will be left as is.”

Some say selling may continue as few participants are yet willing to call a bottom for markets.

There is some hope for the falling knife catchers: “Badri suggested the crude price fall had been overdone. “The fundamentals should not lead to this dramatic reduction (in price),” he said in Arabic through an English interpreter. He said only a small increase in supply had lead to a sharp drop in prices, adding: “I believe that speculation has entered strongly in deciding these prices.””

Unfortunately for the crude longs, Badri is lying, as can be gleaned from the following statement:

Badri said OPEC sought a price level that was suitable and satisfactory both for consumers and producers, but did not specify a figure. The OPEC chief also said November’s decision was not aimed at any other oil producer, rebutting suggestions it was intended to either undermine the economics of U.S. shale oil production or weaken rival powers closer to home.

Some people say this decision was directed at the United States and shale oil. All of this is incorrect. Some also say it was directed at Iran and Russia. This also is incorrect,” he said.

Well actually… “Saudi Arabia’s oil minister Ali al-Naimi had told last month’s OPEC meeting the organization must combat the U.S. shale oil boom, arguing for maintaining output to depress prices and undermine the profitability of North American producers, said a source who was briefed by a non-Gulf OPEC minister.”

And as Europe has shown repeatedly, not only is it serious when you have to lie, but it is even worse when you can’t remember what lies you have said in the past. That alone assures that the chaos within OPEC – if only for purely optical reasons – will only get worse and likely lead to least a few sovereign defaults as the petroleum exporting organization mutates to meet the far lower demand levels of the new normal.

In the meantime, the only question is how much longer can stocks ignore the bloodbath in energy (where there has been much interstellar screaming too) because as we showed on Friday, despite the worst week for stocks in 3 years, equities have a long way to go if and when they finally catch up, or rather down, with the crude reality…


1 thought on “Crude Crash Set To Continue After Arab Emirates Hint $40 Oil Coming Next”

  1. This is the final move of Putin’s economic WW3, the one started by Hugo Chavez in Spring, 2010. Chavez was head of the tiny South American Trade Alliance which held 12 small nations, including Cuba. Their GDP was so small, the US ignored them……what a mistake that was…….I caught it, and could see where it would lead, why could none of the fools in power? I am just an individual with an interest in economics, and due to the dreadful behavior of the US towards the rest of the world economically, politically and socially, I was looking to see what the world would do in response. That is why I caught the story. I know humanity, and I knew the world would not sit back after the US greedy guts destroyed entire nations economically without any recourse, and others with uncalled for bombing…….an alternative to the US system had to be developed. The US has become a rogue nation, such as Germany in 1940.

    Hugo Chavez had the solution. He introduced the first electronic currency, the Sucre, to his organization. Member nations were able to trade with each other using their own currency, leaving the dollar out. The Sucre translated the value of each currency at the time of transaction, making the need for any world reserve currency obsolete. Putin took his concept, and built a global economy around it.

    Russia and China, both allies of Chavez, watched Chavez closely. They established an identical system between each other in November of 2010, using their own currencies, leaving the dollar out. They went on to recruit Turkey, Iran, much of Africa, South and Central America. All of these nations were delighted to find an alternative to the dollar.

    The US replaced diplomacy with threats and unwarranted attacks on nations that did nothing to deserve it. The US had no more trust, respect or credibility, and the worse it got, the crazier US leaders behaved.

    India and Japan joined after another fool round of sanctions on Iran, a fruitful trading partner to much of the world. This move by OPEC will squeeze them, but I think they will survive. None have the dreadful debt level of the oil nations in the Americas. The US greedily became the #1 oil producer regardless they destroyed precious drinking water and the land stability of the entire nation. This will stop the fracking, and in the long run (nobody looks at that), it will be better for the people. The US government stopped caring about the people after the passage of Citizens United in 2010…….(a lot happened that year). Australia and New Zealand dumped the dollar as well in early 2011.

    Switzerland, Canada and Qatar are the latest to dump the dollar. In January of 2010, the US dollar was involved in every international economic trade in the world. Today, it is involved in less than 30%, and the number is falling. So many nations have dumped the dollar, I cannot recall all of them.

    With this move by OPEC, the US totally relies on the EU to keep the dollar afloat. Already Germany, France and the UK are finding alternative trade avenues to avoid the dollar……..we are now down to weeks before the cracks become visible. I have been watching this evolve since 2010……as one who is in the US, I am not happy to see it, but knew it was inevitable.

    The person(s) behind the sock puppet in the white house shows pure insanity, nothing else can explain Obama’s mad pursuit of war, war with anyone………ending up with another unilateral attack on poor Iraq because he can find no allies or coalition. ISIS was created by the CIA to give the US an enemy that would fight…….nobody else will…….the US is isolated on all levels now. Nobody will do business with a bankrupt madman.

    Thank you again for covering so much of the essential news that is becoming harder to find. Tonight, all the financial channels (along with the cable news that isn’t) are covering one stupid story out of Sydney, Australia……rubbish, totally unsuited for world news.


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