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The
monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil extended
its retreat for a fifth month, tumbling $8.61 to $75.79 per barrel; that is the
lowest price since October 2010. The price drop coincided with a strengthening
U.S. dollar, the lagged impacts of a 237,000 barrel-per-day (BPD) decrease in
the amount of oil supplied in September (to 19.0 million BPD), and a slower
accumulation of crude oil stocks. The monthly average price spread between Brent
crude (the predominant grade used in Europe) and WTI widened by $0.63 in November,
to $3.65 per barrel.
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OPEC’s
decision
to maintain production levels seems to be having the desired effect of knocking
out shale oil producers: Permits
for new U.S. wells dropped by nearly 40% in November. Oil producing countries
are not necessarily “in the driver’s seat,” however; many of them have high
fiscal break-even
costs (e.g., Saudi Arabia: $98/barrel;
Venezuela: $161) because of generous welfare spending, and thus falling prices
are “playing
havoc” with their budgets.
Given
the present downward momentum in futures prices, we expect further erosion in spot
oil prices.
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The foregoing comments represent the
general economic views and analysis of Delphi
Advisors, and are provided solely for the purpose of information, instruction
and discourse. They do not constitute a solicitation or recommendation
regarding any investment.
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