OPEC is talking about holding an extraordinary meeting to send a message that they can’t take it anymore or really because they are saying they will do whatever it takes. Of course, it is hard to believe that OPEC actions will mean anything if the global equity markets continue to crater. The price of oil really has nothing to do with current supply-demand fundamentals, only fears of what those fundamentals may be signaling about the global economy.
The shock value of the price drop and the lack of confidence about the global economy will cause a sharp pullback in energy investment. Big CapX cuts will surely follow as companies have to adjust to what has been a 40% reduction in price whether they want to or not. They will have no choice even if they believe that this price crash is overdone because the shareholders will not take too kindly to them if they are wrong.
If the economy is not as bad as the market is suggesting, then it is very possible that we will quickly fall into an undersupplied market. That could cause a big price spike next year. Of course, if the worst stock market action, since the beginning of the great recession, reflects a sharply slowing economy than it probably won’t matter. That of course, is a larger concern and more of an issue, not just for OPEC but U.S. producers as well.
From the supply side we get a report from the American Petroleum Institute tonight, and while it may be totally different from the Energy Information Administration, they should both show at least a 3-million-barrel weekly drop in U.S. crude supply. Products should also fall with gasoline down 2mb and distillates down 3mb.
The cold weather was put off causing a big selloff in natural gas. The outside doom and gloom in the overall marketplace did not help.