Crude Oil Continues to Implode

Oil prices fell lower, after data showing that oil production in the U.S. hit a new high-water level. Traders are also increasing their odds that the Saudi led OPEC will not reign in production at their next meeting.

What does this mean? Crude oil prices will continue to go south.

The U.S. produced 9.06 million barrels of crude per day, according to government data. The last time the U.S. was above the nine million level was in 1986. In March of that year they produced 9.13 million barrels. Psychologically, the U.S. hitting this level is bearish and causes investors worry. With weakening demand, as inventories are up, this puts downward pressure on not only oil but all energy futures.

Saudi Arabia is not helping matters. Ali al Naimi, the Saudi oil minister, has indicated that his country will not decrease production and thinks all this talk about a “price war” is a “misinterpretation.” He says Saudi Arabia is working very hard to stabilize the price of crude. In other words OPEC has no intention of cutting production at its November 27 meeting. This is not a smart move by the Saudis. They will need to burn savings to start paying the governments bills if oil prices continue to fall. It would be a better move to cut production which would rebalance the market.

Also, lower prices will weigh on the high-cost oil producers. This includes U.S. based companies, like Exxon (XOM: NYSE). We need to see a pickup in demand as we enter the winter season in the United States.

Thursday, Brent futures crashed 3.4 percent to $78 per barrel. West Texas Intermediate lost near $3.00 per barrel to close at $74.21. Brent is down almost seven percent for the week and crude oil is now near a 4 year low.

Traders have been watching OPEC over the last several days.

The market was expecting them to protect a floor at nearly $85 per barrel. They were incorrect. With the recent comments coming out of Saudi Arabia about production, the sellers are out in force and price is falling rapidly. We could be at $75 per barrel before too long and then $70 is not out of the question. There is too little demand for the black gold and too much supply and production. It would make sense for Saudi Arabia to cut back on its 9.6 million barrel per day production to help rebalance the market. This not likely to happen as the cartel, meaning OPEC, will stand pat on November 27.