The U.S. dollar (UUP, quote) climbed higher against other world currencies after non-Farm Payroll last week Friday on speculation the Federal Reserve could hike interest rates this month.
With OPEC meeting now in the rearview mirror and no adherence to a production quota coupled with a strengthening U.S. dollar WTI (USO, quote) and Brent (BNO, quote) crude oil are heading straight to its 7 year lows.
The world’s oil glut cause by no small part of OPEC’s continuing its 30 million barrels per day a rate of up 2 million barrels per day above demand. This rate not only is pushing price below $40 a barrel but is adding extreme pressure on U.S. Shale Drillers, especially those that took large loans out to expand production.
According to meeting minutes Amin Nasser, Chief Executive of Saudi Aramco indicated he sees oil prices adjusting at the beginning of 2016 as unconventional oil supplies start to decline. This little nugget in the meeting notes speaks volumes. I look at this comment as Saudi Arabia is looking to continue above demand drilling quota pressure to force the smaller oil suppliers like shale drillers in the U.S. to the sidelines. And it’s working! The Baker Hughes' rig count report for November indicates U.S. rig count is down another 31 m/m to 760 rigs offline.
Bottom Line: I’m stay out of the oil patch with the one exception for pipeline companies. Albeit they have been sold off hard with every ever oil company. Crude oil still flows through pipelines and the pipelines continue to get paid. Think of it’s as a highway for oil and producers have no choice to pay a toll no matter what the price of oil is trading at.