Sunday, November 30, 2014

Energy Quakes as OPEC Stands Pat

Lots going on in energy markets this week.

Here's WSJ, "Oil Stocks and the Currencies of Major Oil-Producing Nations Tumble":
Energy company stocks and the currencies of major oil-producing nations stumbled Friday as OPEC’s decision to maintain crude output levels despite a glut rippled across the globe.

The Organization of the Petroleum Exporting Countries’ decision knocked down U.S. benchmark oil prices on Friday by 10% to $66.15 a barrel, the lowest level since September 2009.

Uneasy investors dumped energy stocks. Among the hardest hit were U.S. domestic oil producers including Continental Resources Co., the biggest producer in North Dakota’s Bakken Shale. Its shares plunged on Friday nearly 20%, to $40.98.

Exxon Mobil Corp. fell 4.2%, BP PLC dropped 5.5% and Royal Dutch Shell PLC lost 7%, all in abbreviated New York trading.

Currencies of most major oil producing nations, including Russia, Nigeria and Canada, weakened. The Russian ruble tumbled almost 3% to an all-time low of 50.57 to the dollar, before recovering slightly. The Mexican peso slid to its weakest level versus the greenback in more than two years. Russia said it would revise or cut government spending.

Pascal Menges, a portfolio manager with Lombard Odier in Switzerland who has shares in U.S. shale oil producers, said OPEC’s decision “created a very uncomfortable situation” for oil companies that must decide whether to curb investments. He predicts the global oil oversupply will decline over the winter and U.S. production growth will slow, preventing prices from falling much more.

If that is the case, he said, the least-indebted North American shale companies should stay profitable. Still, he said, he has cut his fund’s investments in oil producers, moving some of the money to companies that buy and process oil.
This is economic warfare. And frankly, a last gasp from OPEC, as markets will reach equilibrium. Established U.S. producers will keep producing and investing. OPEC's income will decline along with the all of the rest.

According to the article:
Todd Staples, president of the Texas Oil & Gas Association, a trade group, said in a statement that low crude oil prices will impact some U.S. and global operations. Still, he expects prices to eventually stabilize. “We are confident the market will find an equilibrium,” he said.
Keep reading.