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Oil prices slipped below $93 a barrel Tuesday, continuing a downward trend that started early last month.
Last week, oil prices fell 0.76%, logging a sixth weekly decline, the longest string of losses since 1998. Volume also slid, with futures roughly 41% below the 100-day average.
Over the past two weeks, oil trading has been modestly light, with prices treading between $93 and $96 a barrel.
But prices are down from nearly $110 a barrel in early October. Here’s what’s going on…
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A trio of factors is presently pressuring oil prices:
- Iran Nuclear Talks: Oil prices dropped Tuesday ahead of intense negotiations aimed atcurbing Iran’s nuclear program, which could lead to the return of Iranian oil to the market.
Iran is scheduled to resume talks this week in Geneva with six world powers in attempts to resolve a 10-year standoff over Iran’s nuclear program. The United States, Great Britain, France, Russia, China, and Germany are proposing a gradual rollback of sanctions on Iran that have crippled Iran’s economy, if Tehran takes clear steps to halt the advance of its nuclear program.
Sanctions implemented in response to the country’s nuclear program purposely target Iran’s energy sector. Indeed, oil exports are at the core of Iran’s economy. According to the International Monetary Fund, revenues from oil exports fund roughly 66% of the Iranian government budget.
The concern hovering over oil traders is that Iranian oil could flood world markets, which are already well stocked.
“The price of Brent would be below $100 a barrel if Iran was able to produce and export its maximum potential,” brokerage PVM wrote in a note to clients.
Commerzbank analysts noted that the possibility of Iran’s million-barrels-per-day of oil returning to the markets has resulted in few speculators betting that the price of Brent crude will rise from present prices.
- Ample Supplies: Oil’s fall on Monday came amid fresh data showing global oil markets aresufficiently stocked.
That prompted comments from Citigroup Inc. (NYSE: C) that potential supply disruptions have subsided.
In an e-mailed report, Citi also said it is “receding expectations for higher prices amid progress toward an agreement over Iran’s nuclear program.” The oil market is currently being pummeled by “bearish pressures,” Citi said. That helped fuel Monday’s 0.8% slide in Brent crude.
Citi’s remarks followed the release from the Joint Organizations Data Initiative (JODI) that showed Saudi Arabia, the largest producer in the Organization of Petroleum Exporting Countries (OPEC), exported more crude this past September than in any month in seven years.
The oil giant pumped some 7.84 million barrels a day and shipped 7.84 million barrels a day in September, the most since November 2005. In October, Saudi Arabia upped exports by 300,000 barrels a day, even amid curtailed production, Bloomberg reports.
Additionally, worries over supply disruptions from Libya, where social and political unrest have drastically curtailed output, have been alleviated. Reports show interruptions have been balanced by ample Saudi Arabian oil exports.
- U.S. Stockpiles Swelling: Also pressuring oil prices are surging stockpiles in the UnitedStates, the world’s biggest oil consumer. Crude stores soared to 388.1 million barrels over the seven days ending Nov. 8 as outputs gushed to the highest rate since January 1989, the Energy Information Administration (EIA) reported last week.
U.S. oil production has steadily soared. Last month, for the first time in nearly 20 years, the United States produced more oil than it imported. U.S. producers pumped 7.7 million barrels of crude daily in October, an 11% increase from a year ago and an astounding 63% over the past five years. The rise follows decades of declining production.
The EIA estimates U.S. crude production next year will average 8.5 million barrel a day, the most since the mid-1980s.
“Supply has been more than enough to cover demand, particularly in the U.S.,” Roc Spooner, a chief market analyst at CMC Markets in Sydney, told Bloomberg. “That, plus a diminished Middle East risk premium, has seen the supply situation being a dominant factor [in falling oil prices].”
This price movement doesn’t mean oil stock profits have disappeared. In fact, there’s a “new normal” developing for oil companies, and our Global Energy Strategist Dr. Kent Moors knows how to find the profits – which, as he pointed out here, could be even bigger than before…
- CNN Money:
- The Wall Street Journal:
Number of the Week: U.S. Producing More Oil Than It Imports
Brent Drops for a Second Day; Citigroup Lowers Forecast