While everyone in the US was eating turkey and watching some really bad football games yesterday, OPEC was meeting to decide on their production levels. Immediately after they announced their decision to continue current production levels, the oil futures markets began to drop like a rock in water. Following the announcement Brent crude hit its lowest point since August 2010, falling below $72 a barrel, before settling at $72.82, 5% drop on the day. As I write this BRENT is trading at $73.19 and trending down, but has been jumping up and down all morning. The US based WTI dropped $4.64 to $69.05 a barrel, although market business slowed by midday in thinning Thanksgiving holiday business. It is trading at just under $69.40 right now and has been remarkably stable all morning trading between $68.75 and $69.40.
What is not shown or known by the average citizen is the Kurdish Regional Government completed it's first of two new pipelines and an agreement with the Iraqi government in Baghdad has been completed allowing the KRG to independently sell more than 50% of it's current and future output on the open market. When the second pipeline is completed and begins lifting oil early next year, the daily delivery rates coming out of the KRG will be more than a 1/2 to a million barrels. This will be a long term production increase as the known and easily extractable fields in the KRG exceed 45 BILLION barrels at lift costs as low as anywhere in the world.
When considering that the steep rise in oil prices during the summer of 2008 was due to a loss of production of approximately 2 Million barrels per day, an increase of a million from the KRG and the 1/2 to 3/4 million BPD from Libya which recently came back on line, combined with the fact that the domestic US production is at it's highest level since the mid 70's, it is easy to see that oil prices will remain lower for the near term future.
Unfortunately, from a political standpoint, Obama will continue to Gruberize the American public taking credit for the resulting price drop on gas and heating oil in spite of the fact that he has been more of an impediment than a help.