Oil Prices Plunge On OPEC Inaction
Today’s Spotlight Market
Gasoline futures prices fell sharply following the OPEC announcement, dropping below $2 per gallon for the first time since the fall of 2010. Gasoline prices also received some bearish news from this past week?s EIA energy stocks report, with gasoline inventories rising by a larger than expected 1.825 million barrels, despite a small uptick in U.S. gasoline demand the past month.
Fundamentals
Oil importing nations received an early holiday gift, courtesy of the Organization of the Petroleum Exporting Countries, which is better known as OPEC, following a decision to leave current production quotas in place. The current quote at 30 million barrels per day is thought to be too high given current global demand, as well as to offset the increased production seen in the U.S., OPEC actions or I should say inaction in regards to curtailing production to help support falling Oil prices surprised some traders as futures prices plunging over 8% following the announcement.
The decision to keep output unchanged was certainty not unanimous as members such as Venezuela and Iran were proposing production cuts of between 1 and 2 million barrels per day. However, Saudi Arabia, the largest oil producing nation in the cartel, was against any cuts in production and instead preferring to see oil prices fall in order to maintain market share.
OPEC power to help steer global oil prices is being challenged by increased production by non OPEC members such as the U.S., as well as slack global demand, especially in Europe. Among the nations thought to really feel the pinch of Oil prices near $70 per barrel is Russia, whose governmental budgets are based on oil prices closer to $100 per barrel. With the next schedule meeting for OPEC not until June 5th, we may see 6 months or more of oil prices near current levels unless extraordinary actions are taken to reduce global oil output.??? ?
Technical Notes? -? View Today’s Chart
Looking at the weekly continuation chart for RBOB Gasoline, we notice prices were already in a bear market phase prior to Thursday?s steep selloff, as previous support near the 2.4400 price level gave way back in late September. No surprise that prices are now well below both the 20 and 200-day moving averages, and the 14-week RSI is now well into oversold territory with a current reading of 13.80. The next major support level is not seen until prices approach 1.5800, which is still nearly 30-cents below current front month futures price levels. Resistance is seen near 2.4400.
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