Oil prices are under pressure as U.S. inventories remain above seasonal averages and global economic uncertainties continue. Production quotas will certainly be discussed when OPEC meets next week.
Benchmark crude oil fell more than 2 percent on Thursday to $86 per barrel in trading in New York. Brent crude, used to price international oil varieties, slipped $1.87 per barrel to $106.94 in London yesterday. Brent crude has dropped 14 percent from this year’s peak price.
Supplies in the U.S. are surging as horizontal drilling and hydraulic fracking have unlocked resources in North Dakota, Texas and Oklahoma. The U.S. pumped 6.8 million barrels a day during the week of Nov. 23, the most in nearly 20 years, according to the Energy Department. The U.S. produced more than 83 percent of its own energy in the first eight months of 2012, and is on course to be the highest level since 1991.
Increased oil production in the U.S. and soft demand elsewhere has created a dilemma for OPEC. The 12 member countries of OPEC have pumped an average of 31.6 million barrels a day this year, the most since 2008. But global supplies are brimming with oil, and OPEC appears ready to reaffirm an output ceiling of 30 million barrels a day when they meet Dec. 14 in Vienna.
Oil market analysts believe that OPEC must reduce production or face significant oil price declines in the coming months. One analyst said “the inventory overhang is just untenable.” If OPEC fails to act, some believe London-traded Brent crude could fall by 15 to 20 percent by next summer.
A major immediate concern to oil supplies and prices is the escalating conflict in Syria. Traders believe conflict between Syria and Western Allies could push crude oil prices higher in the short term.
U.S. average gasoline and diesel prices were lower this week. The average price for unleaded gasoline was $3.38 per gallon, according to the AAA. That’s about 10 cents higher than a year ago. Average diesel prices were quoted at $4.01 per gallon.