Oil prices tumbled as the OPEC decided to raise the output ceiling although global economic headwind would likely reduce demand rather than increase it. Meanwhile, debt-ridden countries in the Eurozone continued to struggle. Italian bond auctions held yesterday was viewed negatively although the government managed to sell 3B euro of the 5-year bonds. The front-month contract for WTI crude oil plummeted to a 5-week low of 94.21 before settling at 94.95, down -5.18%, while the equivalent Brent crude contract slumped to 104.36, the lowest level since October 7, before ending the day at 105.02, down -4.09%. Gold dived for the 3rd consecutive day, losing -4.58% Thursday to settle at 1586.9, amid USD strength. The selloff may continue in the near-term.
The OPEC, a cartel holding the 40% of the world's oil, announced, for the first time in 3 years, to increase its production ceiling to 30M bpd so as to make room for rising exports from Libya. The new quota, replacing the current target of 24.85M bpd for OPEC -11, is for all members of the cartel, including Iraq and Libya, and comes in line with total OPEC production in recent months (e.g.: production in November was 30.37M bpd while that in October was 29.81M bpd). Oil ministers also agreed that the target will be reviewed at its next meeting on June 14. According to Venezuelan Energy Minister, the adjustment was to fulfillment the OPEC's commitment to 'maintain the market in balance' and to 'open space for Libyan production'. Iran's oil minister stated that risks of the world economy are balanced on both sides as 'we are faced with the prospect of a world economy which could swing either way in the coming months... It could enter a welcome period of sustainable economic recovery or return to a new downturn or even recession'. The decision to raise the production quota may help alleviate pressure from oil prices but it may do little to boost the world economy and inflationary pressures have been easing in most countries.
The DOE/EIA reported that total crude oil and petroleum products stocks rose +2.00 mmb to 1055.98 mmb in the week ended December 9. Crude stockpile slipped -1.93 mmb to 334.15 mmb as stocks decreased in 3 out of 5 PADDs. Cushing stock, however, climbed -0.08 mmb to 31.18mmb. Utilization rate decreased -2.6% to 85.1%.
Gasoline inventory soared +3.82 mmb to 218.82 mmb although demand climbed +1.07% to 8.67 M bpd. Production surged +4.57% and imports slid -5.37% during the week. Distillate inventory added +0.48 mmb to 141.50 mmb although demand edged higher, by +0.84%, to 3.95M bpd, imports declined -40.40% while production dipped -1.11% during the week.
In the Eurozone, Italy sold 3B euro of 5-year bonds at 6.47%, up from 6.29% at the prior auction on November 14. Although the amount sold matched with the maximum target, investors were not excited about it. Instead, they felt disappointed as they believed the 'success' of the auction was only due to the ECB.
The SNB will have a meeting today. With rapid moderation in economic growth and inflation since the last meeting, the central bank may accelerate measures to curb the strength in Swiss frnac. In September, the SNB announced to enforce the minimum exchange rate of CHF 1.20 per euro and pledged to take further measures if the economic outlook and deflation risks warrant. Policymakers believed that the Swiss franc remained high even at 1.20 per euro. There have been speculations recently that the central bank might raise the level to 1.25 or even 1.30 at the December meeting. In addition, effective interest rates may be lowered further as Finance Minister Eveline Widmer-Schlumpf said the central bank would examine negative interest rates and capital controls so as to cap currency strength.