The pressure on crude oil prices did not let up last week as Saudi Arabia continued to lower its benchmark price for Asian buyers. Saudi Arabia has set no target for the price of crude oil, preferring to let the market find an equilibrium price.
- Saudi Arabia is well positioned to start a price war since it has accumulated almost $800 billion in reserves over the last few years. According to the latest data from Bloomberg, the 12 members of OPEC are producing 30.56 million barrels of crude per day (million bpd), outstripping the production quota, which is 30 million bpd. The price correction does not yet appear to have affected crude output in the U.S., which was 9.08 million bpd in November, the highest level seen since January 1983. On the other hand, it is clear that today's prices will eventually affect production
- Analyses performed by the main investment banks show that drilling operations in the U.S. will be hard hit if crude stays below $70/barrel. A price of $70/barrel will drive down investment spending by approximately 17%. Analysis of corporate financial statements also reveals that the main U.S. producers have 20% of their output hedged in 2015 but only 1% in 2016.
- Since the beginning of 2014, the prices of WTI, Brent and diesel have plummeted 33%, 38% and 32%, respectively. The falling price of crude oil, combined with the good employment indicators released on Friday, weighed heavily on the Canadian dollar, which was trading near the trough reached at the beginning of November. The trend for our currency is clearly downward, and this should temper the impact of collapsing oil prices on Canadian fuel prices.
Have a good week!
Emmanuel Tessier-Fleury