Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: The price of oil fell again Wednesday morning as WTI fell 1.9% to $62.58 per barrel and Brent Crude dropped 1.7% to $65.72. Oil prices have fallen sharply over the past three months on over supply in the market, but it's demand that's become a concern today.
Image owned by The Motley Fool.
So what: OPEC, the 12- country oil cartel, said it expects demand for its oil will drop to 28.4 million barrels per day from 29.4 million barrels per day in 2014. This is a notable drop and is well below the 30 million barrel per day targetthe cartel has set.
Now what: Lower demand can partly be blamed on ever-increasing production in the U.S., where shale drilling continues to drive production growth. Short-term, U.S. production won't fall, even if oil prices are low, because so many shale wells have already been drilled. OPEC's goal of keeping production highis to keep the U.S. from growing even more and becoming a net oil exporter.
Lower demand for OPEC could lead to oversupply, but there was also a sliver of hope for lower production from today's report. OPEC said its own production fell 390,100 barrels to 30.05 millionbarrels per day and even Saudi Arabia lowered production by 60,100 barrels.
Oil prices are all about supply and demand and today's narrative is focusing on OPEC's demand heading into 2015. But the bigger story will be supply so keep an eye on whether or not OPEC breaks below 30 million barrels per day of production next month. That's what could get oil prices moving higher, which is what shale drillers, equipment suppliers, and even big oil need to boost profits.
The article Oil Prices Continue Decline as OPEC Predicts Lower Demand originally appeared on Fool.com.
Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.