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The
monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil retraced
October’s gain when falling by $4.30 (8.6%) in November, to $45.48 per barrel.
The decrease coincided with a much stronger U.S. dollar, the lagged impacts of
a 267,000 barrel-per-day (BPD) drop in the amount of oil supplied/demanded in September
(to 19.9 million BPD), and a plateauing of accumulated oil stocks. It is
noteworthy that, for the first time since the Great Recession, the year-to-date
(through September) average volume of oil supplied/demanded is only on par with
the same months in 2000.
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Prices rocketed higher in early December (+14% by 12/2), in the
wake of a surprise November 30 agreement by OPEC intended to cut overall cartel
production by 1.2 million barrels per day (BPD)—the first deal to cut output
since 2008. Key details of the agreement, which had been assigned only a 30%
chance of succeeding, include a Saudi/Gulf Arab
reduction of 800,000 BPD and another 90,000 BPD reduction from Russia while
allowing Iran to increase output by 90,000 BPD.
For skeptics, the OPEC agreement has the hallmarks of a Hollywood
remake. Past cuts have been largely ineffective because “we tend to cheat,”
Saudi Oil Minister Ali
al-Naimi admitted. “It’s
much easier to coordinate an agreement than it is to enforce one,” agreed Troy
Vincent, oil analyst at
ClipperData, “and if history is any indicator, economic theory and cheating
will play out as it always has.”
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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