Oil slides, Brent slated for biggest annual drop since 2008

31 Dec 2014 | Author: | No comments yet »

Have Oil Prices Hit Bottom?.

The price of crude oil had a precipitous decline in the latter half of 2014. Oil’s slump has roiled markets from the Russian ruble to the Nigerian naira and squeezed government budgets in producing nations including Venezuela and Ecuador.OPEC oil output dropped less than 1 percent in December, the first month after the group refused to cut production in response to a rout in oil prices, a Bloomberg survey showed.

NEW YORK—Brent oil futures, the global benchmark, are down about 50% for the year as plentiful supplies and tepid demand have sent prices plunging since June. Output by the 12-member Organization of Petroleum Exporting Countries slipped 122,000 barrels a day, or 0.4 percent, to 30.239 million, led by declines in Saudi Arabia, Libya and the United Arab Emirates, according to the survey of oil companies, producers and analysts.

OPEC has signaled it won’t cut supply to influence prices, instead preferring to defend market share amid an unprecedented U.S. shale boom. “The main reason for oil’s decline is OPEC sitting on the fence,” Giovanni Staunovo, an analyst at UBS AG in Zurich, said by e-mail. “To prevent an excessive inventory build-up, non- OPEC supply growth, particularly U.S. tight oil, needs to decelerate or stall temporarily.” President Barack Obama’s administration opened the door for expanded oil exports by clarifying that a lightly processed form of crude known as condensate can be sold outside the U.S. Earlier Wednesday, China’s factory data showed more sluggishness, with the final reading of the HSBC Manufacturing Purchasing Managers’ Index at 49.6 in December, down from 50 in November. The publication of guidelines by the Commerce Department’s Bureau of Industry and Security is the first public explanation of steps companies can take to avoid violating export laws. OPEC left its production quotas unchanged at a Nov. 27 meeting in Vienna, prompting speculation that the group will let crude slide low enough to slow U.S. production that’s climbed to the highest level in three decades. “Ultimately the big producers will make significant cuts to support prices,” Dan Heckman, Kansas City, Missouri-based national investment consultant at U.S.

Late Tuesday, the American Petroleum Institute said weekly total U.S. crude stockpiles rose by 760,000 barrels, and stockpiles at the Cushing, Oklahoma delivery point for Nymex WTI futures rose by 1.8 million barrels. “Given that crude stocks normally decline at this time of year, we’ll view the increase as moderately bearish if confirmed by the more definitive Department of Energy data due out at 10:30 a.m. The U.S. oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, or fracking, which has unlocked supplies from shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota. Both contracts are on track to settle at five-year lows, marking a “poetic end to…what ended up being a difficult year for the oil and gas industry,” said Adam Wise, managing director at John Hancock Financial Services, who helps oversee about $7 billion in energy-related investments.

Commerce Department Tuesday confirmed that it has granted more permissions to energy companies with ultralight oil export applications pending before the agency. The shale boom in the U.S. has resulted in surging oil production in the world’s largest economy, giving stiff competition to other global oil producers, especially the Middle East. In addition, transportation companies will benefit as it reduces their cost of doing business, potentially resulting in lower prices on a large number of items. Saudi Arabia, which is leading OPEC to resist production cuts, has said it’s confident that prices will rebound as global economic growth boosts demand.

New pipelines have opened in recent months to bring oil from the Rocky Mountain region, North Dakota and Canada to storage facilities in Cushing, said Andy Lipow, president of Lipow Oil Associates in Houston. “We’ve steadily rebuilt those inventories” at Cushing, said Donald Morton, senior vice president at Herbert J. One of six storage tanks set ablaze in the assault on Es Sider collapsed Dec. 29, Ali Al Hasy, spokesman for the Petroleum Facilities Guard, said by phone. Sims & Co. “It’s just very bearish out there right now…I don’t see anybody wanting to pick a bottom just yet.” The storage data also showed that supplies of petroleum products rose more than expected.

He has since appointed Prince Muqrin bin Abdulaziz as second in line to the throne after Crown Prince Salman Venezuela’s President Nicolas Maduro vowed an economic “counter-offensive” to steer the OPEC nation out of recession as it struggled with the world’s fastest inflation. Ecuador, which relies on crude for about a third of its revenue, may cut next year’s budget by as much as $1.5 billion and seek additional financing if prices don’t stabilize, the Finance Ministry has said. Oil’s collapse has also threatened to push Russia, the world’s second-largest crude exporter, into recession as its currency headed for its steepest annual slide since 1998. The central government reached a deal with its semi-autonomous Kurdish region early this month on oil exports through Turkey, paving the way for more shipments to international markets.

A sub-50 figure indicates contraction. “It’s difficult to see what will turn the market,” said David Wech at JBC Energy. “Most news coming in is relatively bearish and an upside to prices looks unlikely anytime soon.” Speculators cut their aggregate bet that Nymex oil prices would rise in the week ended Dec. 23, the first reduction in four weeks, according to data from the U.S. Commodity Futures Trading Commission. “But the balancing will take time, perhaps not before the middle of the second quarter of 2015,” he said. “The market will get worse before it gets better.” Gasoline futures for January delivery recently fell 2.72 cents, or 19%, to $1.4265 a gallon.

The Asian nation will account for about 11 percent of global demand in 2015, compared with 21 percent for the U.S., projections from the International Energy Agency in Paris show. This current decline may cause some drillers to exit the market, especially if prices remain low for an extended period and their financial reserves expire.

However, with fewer companies in this space, there will be less supply and if the global economy does indeed rebound, this combination could cause prices to trend higher. Crude oil is a vitally important commodity which is used for gasoline, heating oil, diesel fuel, jet fuel, propane, petrochemical feedstock, asphalt, lubricants, waxes, and a host of other items. Therefore, even though this decline may cost some jobs and harm a few companies, the benefits far outweigh the damage, that is, unless you happen to be someone who was laid off.

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