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The
monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil extended
its retreat for a sixth month, plummeting by $15.95 to $59.84 per barrel; that
is the lowest price since May 2009. The price drop coincided with a strengthening
U.S. dollar, the lagged impacts of a 591,000 barrel-per-day (BPD) increase in
the amount of oil supplied in October (to 19.0 million BPD), and a pick-up in
the accumulation of crude oil stocks. The monthly average price spread between Brent
crude (the predominant grade used in Europe) and WTI narrowed by $0.46 in December,
to $3.19 per barrel.
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Bad
Chinese and Eurozone economic news, coupled with excess oil production, were
given as reasons
for the continuing price slump. Expansion of global manufacturing has fallen to
the slowest pace in more than a year. One analyst
estimated that roughly 40% of oil’s recent price drop may be attributable to weakness
in the global economy. Because the short-term supply and demand curves
for oil are very steep, even small changes in the quantity supplied or demanded
can have outsized impacts on price.
Although
prices of near-term futures contracts have eroded further
in January, because prices for later contracts have bounced off their lows of
the previous month we do not expect significant additional fallout 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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