Price War
OPEC is losing control of its power to manipulate oil
prices, and its recognition of that in the face of Russia’s refusal to
collusively cut output sent crude oil cascading 12% lower.
Ali Naimi, oil minister from the cartel’s largest
producer Saudi Arabia, said OPEC would “not” cut output by 1.5 million
barrels a day as planned without agreement from Russia and other non-OPEC
members to slash their output by 500,000 barrels. Russia and
Norway, the major non-member exporters, indicated they would not cut
output.
For the past two years, OPEC has controlled prices by
allocating output quotas among members once oil moved outside of a $22 to $28
per barrel “band” the cartel had established as a price target.
The collapse of communism and rampant unfettered entrepreneurial verve have
expanded output across Russia, the world’s largest country and second
largest oil producer.
By not slashing the quantity of oil it offers on the
world market, OPEC is essentially saying it is willing to flood a saturated
world market that is hamstrung by demand slackening as the world economy
grinds toward recession. This amounts to an oil price war, where OPEC seems
to be playing a game of chicken to regain control of price-setting by
punishing non-compliers with potentially much lower prices.
From
Thursday’s Futures Setups, energies are imploding. December crude oil
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has sunk as much as 10%. Even though crude, heating oil
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and
unleaded gasoline
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straight day,
Off The Blocks
are working out in these markets.
The situation in oil was first brought to the
attention of readers of this column in Monday’s Futures
Market Recap.
T-bonds
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pressured below the 109 20/32 trigger suggested in Wednesday’s
Report. Bonds skidded 2 8/32 to 106 9/32. For a “Top 10” list
of fundamental reasons pressuring bonds to collapse, see Tony
Crescenzi’s commentary today on TradingMarkets.
Despite having come a long way, 50% off the November
low, December Nasdaq 100 futures’
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Volatility reading is showing they could make a larger-than-normal
move. This contract has been on the Momentum-5
List all month, so here you have an indication of direction as well the
likelihood for an outsized move. New 10-Day Highs
in S&P
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suggests equities index futures, as a group, will continue higher.
As mentioned in
Wednesday’s Setups, December
copper
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back and held above support at 66.50.
March cotton
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momentum market, is opening down and beginning its 90-minute session in
support. For the December contract
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Volatility has been huge in livestock, with January feeder cattle
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Department of Agriculture’s cattle-on-feed report, a monthly overview of
livestock in seven states, comes out on tomorrow.