Big plunge in oil today as we had weaker US data and comments from a Kuwaiti official that hinted at the prospect of OPEC increasing production to put downward pressure on prices.
Oil prices, after hitting $94 a barrel on January 10th have receded to their lowest since early November at the $85 level, with a 2% slide today, extending the decline started last week.
From Marketwatch: Oil at multimonth low on supply fears, data
“Oil futures lost nearly 2% Thursday, hurt by a larger-than-expected increase in weekly jobless claims, an unexpected decline in U.S. durable-goods orders, and comments from Kuwait that reignited fears of increased supplies.”
Comments by the chief of the Kuwait Petroleum Corp. stoked expectations the Organization of Petroleum Exporting Countries might decide to increase production. Farouk al-Zanki told Reuters oil’s recent high prices makes him “nervous” and that Kuwait doesn’t want “a repeat of the 2008 situation.”
Here’s the same chart zoomed out a bit and we see that we have moved below an important support at around the $87 level.
We can plot Fibonacci retracement levels from the rally that started at $70.85 to our recent high at $93. From there we have some targets for the downside including $84 – the 38.2% retracement and $81.50 the 50% retracement.
Kuwait doesn’t want “a repeat of the 2008 situation.”
Back in 2008, this spike in oil prices acted as a shock to the global economy, just as the US recession was heating up. It escalated what was already a bad situation. It seems at least Kuwait doesn’t have the intention to make a similar mistake.
Let’s see what comes of these comments from Davos and if and by how much OPEC countries will agree to increase production.
Oil prices go hand in hand with the recent important in talk about higher inflation. It has become a big theme this week, especially with the situation in the UK – CPI at an annual rate of 3.7% – while the ECB has been sounding more hawkish as its CPI rose to a 2.2% annual rate in December. In the US higher oil prices have increased costs at the pump. Therefore it may be a welcome reprieve for countries battling inflation if OPEC eased up the spigots.
US Data Underwhelms, Another Pressure Point for Oil
Also, today’s macro-economic data from the US also decreased demand for oil as jobless claims and durable goods orders came in weaker than expected.
From Bloomberg: Initial Jobless Claims in U.S. Rose Last Week to 454,000
More Americans than forecast filed first-time claims for unemployment insurance payments last week, indicating it will take time for the labor market to mend.Applications for jobless benefits increased by 51,000 to 454,000 in the week ended Jan. 22, Labor Department figures showed today. Economists forecast 405,000 claims, according to the median estimate in a Bloomberg News survey. The number of people on unemployment benefit rolls rose, while those collecting extended payments fell. A Labor Department official said snow in four southern states in previous weeks created a backlog of claims that were processed last week.
From Bloomberg: Orders for U.S. Capital Equipment Climb for Second Month
“Orders for U.S. capital equipment climbed in December for a second month, a sign companies continue to invest as demand recovers from the worst recession in seven decades.
Bookings for goods like computers and communications gear excluding aircraft climbed 1.4 percent after a 3.1 percent gain in November that was larger than previously estimated, figures from the Commerce Department showed today in Washington. Total orders fell 2.5 percent, depressed by volatile demand for aircraft, which plunged 99 percent.
Manufacturers from General Motors Co. to General Electric Co. are benefiting from increasing demand as the global recovery strengthens. Even so, the Federal Reserve yesterday said the U.S. economy wasn’t growing fast enough to spur bigger job gains and pledged to stick to a plan to buy $600 billion in assets by June.”