Oil’s Fall Continues, to Below $50 a Barrel

5 Jan 2015 | Author: | No comments yet »

Crude Prices Dip Below $50; Energy ETFs Sink.

The U.S. shale boom that’s brought the country closer to energy self-sufficiency than at any time since the 1980s will be challenged in 2015 as never before.HOUSTON — Oil prices tumbled below $50 a barrel on Monday, spooking global financial markets and signaling that the remarkable 50 percent price drop since June was continuing this year and even quickening.NEW YORK (Reuters) – The selloff in global oil markets showed little signs of slowing in the new year, falling as much as 6 percent on Monday to their lowest since spring of 2009 as fears of a supply glut that vexed the market for the past six months deepened.

Citigroup Inc.’s Ed Morse was the analyst who prominently called $75-a-barrel global oil prices last March, back when it was trading above $100 a barrel and prevailing wisdom had prices rising rather than falling. The benchmark U.S. crude price has fallen below $60, demand growth is weakening and OPEC, which controls 40 percent of supply, is unwilling to cut output. “The extent and rapidity of the price decline has been a surprise,” said Andy Lipow, president of Lipow Oil Associates, an energy consultant in Houston. “They’re facing a new reality.” West Texas Intermediate reached a 2014 peak of $107.73 in June before dropping to $51.68 in electronic trading on the New York Mercantile Exchange Monday morning in London.

The new drop in American and global benchmarks of more than 4 percent was accompanied by a series of reports of increased Middle Eastern oil exports; continuing increases in American production despite planned exploration cutbacks by many oil companies; and renewed worries about the declining economic fortunes of Europe. Top crude exporter Saudi Arabia has made deep cuts to its monthly oil prices for European buyers, a move that analysts said reflects the kingdom’s deepening defence of market share.

Saudi Arabia also trimmed prices for U.S. refiners while raising rates for Asia. “There’s no doubt that we have a combination of supplies hitting their zenith at a time when demand is weakening,” said Phil Flynn, analyst at Price Futures Group in Chicago. The selloff, which began on concerns of oversupply in high quality U.S. shale crude, accelerated after the November meeting of the Organization of the Petroleum Exporting Countries, where Saudi Arabia ruled out production cuts as means of boosting prices. They see a confluence of factors — including continued surging U.S. production, Saudi resistance to cutting output, and a weakening global economy — conspiring to push prices even lower before recovering somewhat in the second half of 2015 and into next year.

Some of the largest U.S. shale drillers, such as Irving, Texas-based Pioneer Natural Resources Co., Continental and Chesapeake Energy Corp., both based in Oklahoma City, have been spending money faster than they make it, borrowing to pay for their expansion, according financial statements filed with the Securities and Exchange Commission. In early afternoon, the Standard & Poor’s 500-stock index was off 1.7 percent, and the fall in the Dow Jones industrial average exceeded 300 points at times. The $1.3 billion United States Oil Fund (USO) fell 4.3% to $19.03 , while the $372 million iPath S&P GSCI Crude Oil Total Return Index ETN (OIL) slumped 4.8% to 11.62%.

European markets, buffeted by a declining euro as well, were hit even harder, with the EuroStoxx 50 ending 3.7 percent lower. “It is a very shaky start for the oil market,” said Tom Kloza, global head of energy analysis for Oil Price Information Service. “The norm is a lot of money comes into commodity index funds at the beginning of the year, and that can create a market rally. Some traders seem certain that U.S. crude will be trading in the $40 region later in the week if weekly oil inventory numbers for the United States on Wednesday show another supply build. “We’re headed for a four-handle,” said Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow in New York. “Maybe not today, but I’m sure when you get the inventory numbers that come out this week, we definitely will.” Open interest for $40-$50 strike puts in U.S. crude have risen several fold since the start of December, while $20-$30 puts for June 2015 have traded, said Stephen Schork, editor of Pennsylvania-based The Schork Report. Citigroup’s commodity group led by Edward Morse warned of “trouble ahead in 2015,” cutting its oil-price forecasts for 2015 and 2016 to below even its most bearish previous estimates. Today, instead of new money coming into oil, you got some more old money going out of oil.” The drop in prices has led to a rising tide of oil company announcements in recent days of investment cuts for the coming months.

Russia’s oil output hit a post-Soviet high last year, averaging 10.58 million barrels per day (bpd), up 0.7 percent thanks to small non-state producers, Energy Ministry data showed. Morse now sees WTI averaging $55 a barrel in 2015, down from $72; Brent oil will average $63 a barrel this year, down from $80 a barrel, he says. “Markets will confront considerably more downside risk in the months ahead and it will likely take well into the year before prices will bottom let alone achieve a new equilibrium.” Meanwhile, Morgan Stanley’s Adam Longson writes that “it’s hard to see much improvement in oil fundamentals near term” given issues with oversupply. “New supply has entered the market, offsetting Libya woes. Ensign Energy Services, a Canadian drilling contractor, reported that it would be laying off 700 workers, or roughly 10 percent of its work force, in California fields. Iraq’s oil exports were at their highest since 1980 in December, an oil ministry spokesman said, with record sales from the country’s southern terminals. Additional exports are coming primarily from Russia and Iraq. … Recent comments out of Saudi Arabia suggest a stronger stance that production will not be cut under almost any scenario.” Predictably, energy stocks are by far the worst performers in the U.S. as the S&P 500 slips 1.6%.

Several Texas-based companies that have borrowed heavily in recent years to produce in new Texas and North Dakota shale fields are expected to announce steep investment and job cuts in the coming days. In 2014, U.S. oil output increased by 1 million barrels a day for the third consecutive year, pushing production to the highest in more than three decades, according to the U.S. Consumers continued to benefit from the oil price collapse, with the AAA auto club reporting on Monday that the average national price for regular gasoline had fallen to $2.20 a gallon, 8 cents lower than a week ago, 51 cents lower than a month ago, and $1.11 below a year ago.

Libya’s oil output has fallen to around 380,000 bpd after the closure of the OPEC producer’s biggest oil port Es Sider, along with another oil port Ras Lanuf. Troublesome for oil producers and bullish oil traders but worth noting is that the revised estimate translates into a $4.4 billion reduction in daily oil costs, which is money that should provide a big boost for other consumer spending – or, as the note puts it, “a $1.6 trillion quantitative easing program for the world economy.” The 76 drillers in the Bloomberg Intelligence North America E&P Valuation Peers Index spent $184.9 billion in the 12 months through Sept. 30, according to data compiled by Bloomberg. The economy of Russia, the second-largest crude exporter, may contract about 4 percent in 2015 if oil stays at $60, according to Finance Minister Anton Siluanov.

Here you can write a commentary on the recording "Oil’s Fall Continues, to Below $50 a Barrel".

* Required fields
All the reviews are moderated.
Our partners
Follow us
Contact us
Our contacts

About this site