Opec Price War

Intensifies As Oil Falls Below $50, Posted on January 13, 2015

Even as Saudi Arabia and its Gulf OPEC allies appear united in their refusal to cut output to boost global oil prices, they are becoming locked in an increasingly fierce battle to secure market share in Asia. Oil prices have slumped below $50 a barrel, the weakest since 2009, triggering a price war between producers to secure customers in Asia. And the price outlook remains grim, with Goldman Sachs slashing its three-month benchmark crude forecasts to just above $40.  Most stock markets around the world fell on Monday as oil prices showed no sign of breaking their prolonged downward spiral, prompting further losses in beleaguered energy shares. Losses were broad in the U.S. equity market, with 9 of the 10 primary S&P 500 sectors ending lower. Energy (.SPNY) was by far the weakest group, off 2.8 percent. The sector is now down more than 25 percent from a high reached in July.


The dollar fell against the yen on Monday in volatile trading, pressured by weakness in U.S. stocks as the currency's positive outlook was somewhat diminished by surprisingly weak U.S. wage data on Friday. Friday's wage numbers cast doubt on a key driver of the dollar's ascent over the past six months. Some market participants have questioned why the Federal Reserve should raise interest rates this year in the absence of clear evidence of inflationary pressures. But Atlanta Federal Reserve Bank President Dennis Lockhart, a voting member of the Fed's Federal Open Market Committee (FOMC) for 2015, said on Monday the central bank may begin raising interest rates even if inflation is not clearly rising to its 2 percent target. U.S. inflation data is due for release on Friday, and the consensus estimate is for a 0.4 percent decline in December.


Sterling fell towards an 18-month low against the dollar on Monday, a day before data that is expected to show inflation dropping sharply, keeping pressure off the Bank of England to raise interest rates any time soon. Britain's consumer price index (CPI) is thought to have eased to 0.7 percent in December, hit by an almost 20 percent monthly fall in the price of oil. A fall in inflation would bolster bets that the BoE will wait until the second quarter of 2016 before it raises interest rates. That is a view that has changed dramatically in the past six months: last summer, many had expected a rate hike by the end of 2014.


Gold climbed 1 percent to a one-month high on Monday as the dollar pared gains and shares turned negative, with investor sentiment boosted by shifting expectations on when U.S. interest rates may rise. Spot gold (XAU) climbed to its highest since Dec. 10 at $1,235.90 in Asian trade and was up 1 percent at $1,233.96 an ounce by 2:56 p.m. EST (1956 GMT). U.S. gold futures for delivery in February settled up 1.4 percent at $1,232.80. The metal was supported by falls in European and U.S. stock markets after oil prices fell to their lowest since April, 2009.


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