EMEA News
Crude Prices Plummet Due to Rising OPEC Output, but Citigroup Insists Rally Will Continue
Last week, members of the Organization of the Petroleum Exporting Countries (OPEC) complained that crude prices likely wouldn't rise due to persistent overproduction, and on Monday prices indeed tumbled due to reports of production ramping up - but not U.S. shale output as the members had charged, rather, production from the cartel itself.
West Texas Intermediate dropped $1.13 to $50.54 per barrel and Brent fell 76 cents to $56.03 per barrel on word that OPEC added 120,000 barrels per day (bpd) to its output in September for a total of 32.83 million bpd, according to a Bloomberg News survey of analysts, oil companies and ship-tracking data.
Production in Libya rebounded by 30,000 bpd, and Nigeria's output increased by 20,000 bpd to 1.77 million bpd.
Reports from the U.S. were equally troubling, with explorers adding rigs for the first time since August.
Ironically given its bullish stance on oil production, Russia's output for September stood at 10 million bpd, unchanged from August and staying at a low for the year.
Bob Yawger, director of the futures division at Mizuho Securities USA Inc., said, "There's a lot of crude oil in storage still and OPEC, who knows what can happen there; they've been pretty good with the compliance levels, but that can slide at any given moment.
"This market was really over-bought; it was a nice run, but you can't just continue to go straight to the moon forever."
Ed Morse, global head of commodities research for Citigroup, strongly disagrees: he told CNBC that with regards to the market rally, "we think it's for real" and dismissed Monday's losses as coming "in the middle of a bit of a sell off, maybe even testing the $50 level for WTI.
"But the sell-off is profit-taking more than anything else, and the momentum in the physical markets, joined by the momentum in the financial markets, really point to a higher price between now and the end of the year."
One thing is certain: emerging geopolitical events will undoubtedly influence traders in the near future, even if it's unclear to what degree they will be swayed.
The events include Turkey, which has threatened severe restrictions on oil trading with Iraqi Kurds after the Kurds backed independence from Badhdad during a referendum last week; and Nigeria, which analysts believe faces another wave of militant attacks (due to disintegrating negotiations with government) that could cripple its output.
Last week, Middle East OPEC producers told media that weak demand and excess supply would likely quash the current price rally, and one source declared that "a range of $50-$55 is good, you don't want to see prices rising to $60 or higher because then it will bring in more shale."
