Last week’s OPEC decision has set off another round of crude losses, which persisted through the week. WTI is now decidedly in mid-$30s territory, with Brent breaking through the $40 per barrel threshold. The losses were once hard to imagine. The bearish voices out there (Goldman Sachs, for example) had raised eyebrows over the course of this year when they predicted oil would drop below $40 per barrel, even provoking some mockery at times. But they were right – here we are.
The short run doesn’t look great, either. “When we look at 2016, I don’t see many reasons why we can see upward pressure on the prices…Demand is weaker and we may well see Iran come back (to the market) and there will be a lot of oil,” IEA’s executive director Fatih Birol said in Paris this week. “So 2016 may well be another year with lower prices and this will have implications of course for investments in the oil sector.”
The collapse of crude prices has once again put pressure on emerging market currencies. Canada’s dollar hit an 11-year low against the U.S. dollar this week. Colombia’s peso hit an all-time low. Russia’s ruble is once again under fire, nearing record lows. Other currencies under pressure – the Saudi riyal, the Nigerian naira, the South African rand, Brazil’s real, and Mexico’s peso. With a rate hike just around the corner from the Federal Reserve, the dollar could appreciate further – or put another way, emerging market currencies could continue to fall. This threatens to destabilize fragile economies with rising inflation and depleting foreign exchange reserves.
OPEC piled on the bad news. After last week’s removal of a production target, this week the oil cartel released figures that showed the group collectively produced the most oil in three years in November, ramping up output to 31.7 million barrels per day (mb/d). Iraq accounted for most of the monthly gains, achieving more than 247,000 barrels per day in increases from October.
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