The collapse in the price of oil is unmaking deflationary pressures and could cause a wave of defaults as the global economy and cause an environment where people are going to be less willing to lend money not just in the energy sector but across the economic spectrum. Not only are there growing supply side worries it is coupled with signs of weakening demand.
January West Texas Intermediate $70 puts, which allow an investor to sell futures at that level, have soared more than 40-fold from two months ago as the U.S. benchmark has plunged almost $25 a barrel.
OPEC's decision to cede no ground to rival producers underscored the price war in the crude market and the challenge to U.S. shale drillers. The 12-nation group abandoned its role as a swing producer, ignoring the steepest slump in oil prices since the global recession to keep its output target unchanged.
OPEC is all in and will continue to flood the globe with oil in an effort to bury the U.S. shale crude oil producer. OPEC will continue to produce over 30 million barrels a day adding to the globes 2 million barrel a day of overproduction.
Overall, U.S. markets saw the biggest inflows this month, creating a strong bearish signal on the U.S. Dollar heading into the final trading day of the month on Friday. That said, the timing of the Thanksgiving holiday may prompt some U.S. fund managers to rebalance a bit earlier on Wednesday.
The main and most important short term oil price driver continues to be the outcome of tomorrow’s OPEC meeting in Vienna. Neither Russia nor Mexico showed a willingness to cut their production in support of an OPEC cut.