OPEC Shocked By Drop In Prices

Crude oil opened the morning in the green but still remains well under the $40 mark. This morning oil is at 39.39 and was unable to hold on to mid-day gains on Tuesday. Late Tuesday evening the American Petroleum Institute released their weekly numbers showing a significant drop in inventory levels, but traders this morning paid no attention.  Brent oil is a bit better off but remains well below the $50 level as analysts say there is no way that OPEC will tolerate $40 oil prices. Brent is sitting at 43.24 at this writing.

Crude oil rebounded to end higher on Tuesday jumping 2.8 percent; to settle at 39.31 a barrel rebounded as China lowered its benchmark interest rates to boost its economy with most global equity markets recovering from the brutal losses in the previous session following the massive sell-off on China worries. The uptick came with China slashing its benchmark interest rates to boost its faltering economy, encouraging investors back to equities with some bargain hunting in the process. The Chinese decision to lower interest rates helped bring stability to global equity markets and as well bolstered the US dollar, following yesterday’s massive declines in global equity markets on concerns over China.

The Chinese authorities lowered interest rates overnight, hoping to jump start what was the world’s fastest growing global economy. This helped equities snap back yesterday after brutal losses in the previous session. The interest rates were reduced by 0.25 percentage points each, the People’s Bank of China. Nonetheless, China’s benchmark Shanghai Index plunged 7.63 percent, following its 8.49 percent plunge on Monday. Some upbeat economic data out of the U.S. also helped crude oil bounce back, with consumer confidence showing substantial improvement in August, rebounding from decline last month to a seven-month high.

OPEC is powerless to arrest the slide in oil prices unless other producers such as Russia match any cuts in output, according to a former president of the group. With oil prices plummeting due to global oversupply, the Organization of the Petroleum Exporting Countries will be unable to stabilize the market on its own, Abdullah bin Hamad Al-Attiyah told The Daily Telegraph.

The group – which mainly comprises Middle Eastern and South American oil producers – would need agreement from other oil-producing nations, he said, adding: “I don’t see any light at the end of the tunnel. OPEC and non-OPEC need to agree to support the market.” Brent crude is down 57pc over the last year to a six-and-a-half year low of $43 per barrel, with pressure mounting within OPEC for an emergency meeting to discuss the price slide. Iran’s oil minister, Bijan Zanganeh, said over the weekend that Tehran would support a meeting to address falling prices.

The kingdom was the main catalyst behind OPEC’s decision last November to maintain production levels despite the collapse in prices. That strategy effectively triggered a price war with shale drillers in the US and Russia, but both have increased production in response to the lower prices, suggesting that OPEC’s strategy has failed.

Mr Attiyah, who is also a past oil minister of Qatar, said the current oil price decline had “exceeded our worst expectations”. Saudi Arabia now pumps more than 10.6m barrels per day of crude despite OPEC setting a production target ceiling at 30m bpd.