Crude Oil Outlook
January Crude Oil futures plunged on Thursday after OPEC announced it was leaving oil production levels unchanged. West Texas Intermediate crude prices traded through the psychological $70.00 per barrel level, dropping close to 7% to just below $69.00, its lowest level since May 2010.
In Europe, Brent crude oil prices were down by about 7% to just below $73, further tightening the spread between it and WTI oil.
Although the market was trading lower going into Thursday’s important meeting, traders still reacted as if the decision was a surprise. Many had expected OPEC to agree to cut oil production to 29.5 million barrels a day from 30 million barrels currently, but this scenario never seemed to show up in this week’s price action.
In my opinion, the decision by OPEC fit the scenario that the hedge and commodity funds were following. Although they may have lightened up a little on short positions going into the meeting, they never seemed to budge from maintaining their massive short positions.
They seemed to have a totally different grasp of the situation, one which would most likely mark a turning point in the global oil market where OPEC would no longer bear the burden of being responsible for production adjustments. Their assessment seemed to be supported by other oil bears who felt that a cut in output from 30 million barrels per day to 29.5 million barrels per day would not be enough anyway to stem the…