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Matt Smith

Matt Smith

Taking a voyage across the world of energy with ClipperData’s Director of Commodity Research. Follow on Twitter @ClipperData, @mattvsmith01

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Crude Tanks As OPEC Refrains From Cutting Production

Given it is ‘National Dice Day’, it is apt that OPEC has left it to chance how the market will react to an adjustment to its production quota. The cartel appears to be setting an output ceiling of 31.5 million barrels per day, as opposed to the prior arbitrary quota of 30 million.

This does not mean the cartel is raising production; it is instead putting its production target more in line with reality. Nonetheless, the market wonders whether this includes new member Indonesia, or whether it is to account for impending Iranian barrels returning to market. Either way, the crude complex is getting absolutely trounced.

A couple of hilarious tidbits have come from the two key countries at this meeting: Saudi and Iran. The first one is from the inimitable Saudi oil minister, Ali al-Naimi, who said ‘there is absolutely no disagreement anywhere (in OPEC)’. Which is rather hard to believe. The second is from Iran, who has said it can join future OPEC output cut discussions…once production is back up to 4 million barrels per day. Related: Oil Majors See Opportunity In Climate Action

All the while, Venezuela had been calling for a production cut of 5%. One quick peek at their economy and you can understand why; oil accounts for 95% of its export revenues, hence the precipitous drop in oil means the evaporation of much of its revenues. Inflation this year is at a surreal 124%, while its economy is set to drop by 10% – the worst performer on the planet:

Our second doozie of the day comes in the form of Nonfarm Friday, which is basically acting as a rubber stamp to endorse a US interest rate hike this month. Job creation for November came in at 211,000, above consensus by 11k and with an upward revision to October too. The unemployment rate has held at 5%, while the participation rate has edged up from a 38-year low to 62.5%. Related: Why Is The U.S. Reluctant To Bomb ISIS Oil Fields?

Finally, the chart of the day comes from a piece about Continental Resources, who were so bullish last year that they unwound their hedges for 2014 – 2016 production last October at $95/bbl. While closing out the hedges reaped an immediate gain of $433 million, if the hedges had remained in place, the company would be making a $2.8 million gain each day. This adds up to over $1 billion dollars over the last year or so.

By Matt Smith

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