Posted on 10/16/2014 4:21:33 AM PDT by thackney
Crude oil prices continue to slide with surging production and weakening economic news. Key benchmarks are near to at a four year low, with West Texas Intermediate (“WTI”) closing at $81.84, well below the $100 to $120 range reached between 2010 and 2012.
In fact, the drops have been startling, with WTI closing down $3.90, or 4.77% today alone, and other key benchmarks have not fared better. Until recently, Brent Crude Oil has traded significantly higher than WTI. Surging production and better transportation options have significantly whittled away at the typical $10 to $20 per barrel spread over the last several years. Today for example, Brent closed down $3.85 or 4.53% at $85.04.
While price drops are not unusual during periods of weak demand; this time however, it presents an interesting turn from decades of dependency on the political climate in the Middle East.
Historical pricing has been affected by, and dependent upon, turmoil facing the Middle East. In times of war and geopolitical instability, prices have historically increased rather quickly, often overnight. As turmoil eased, so too would oil and gas prices, albeit at a much slower pace.
Based on historical data, one would expect prices to be dramatically spiking given current events in Syria, Iraq and Libya, yet for all of this instability, prices continue to drop. This, in turn, directly translates into lower gasoline costs for drivers at the pump, with many drivers experiencing unleaded gasoline below $3.00 a gallon.
The drop in price may appear to some as an indication of a weakening market due to conservation, renewables, and weaker economic data. While partially true, the decline also validates the strength of the domestic energy market. While the U.S. is still dependent upon imports, surging U.S. production means the country imports far less than it has...
(Excerpt) Read more at forbes.com ...
http://fortune.com/2014/10/15/whats-behind-the-drop-in-oil-prices-heres-what-analysts-have-to-say/
Excerpts:
“While decline in demand was the key driver for the 2008 crash, the sharp drop in prices this time around is being caused by a supply glut. Continued growth in U.S. shale production and increase in non-OPEC countries oil exports have led to excess capacity,” he wrote in a note to clients....
What’s making the supply glut even worse? Slowing demand. The International Energy Administration lowered its crude oil demand projections for 2014 to about 200,000 barrels per day from the current 700,000 barrels per day. The IEA forecast is the lowest since 2009.
“Chinese demand seems to be softening and there are severe questions about the Eurozone’s recovery, leading the International Energy Agency to cut its outlook,” Scotiabank Economics wrote.
Total world oil demand is expect to grow at 1.05 million barrels per day this year. That’s well below the expected increase in production from non-OPEC countries alone, which is anticipated to grow by 1.68 million barrels per day in 2014, according to KAMCO research....
A stronger U.S. dollar isn’t helping prices. The dollar hit a 4-year high on Oct. 3 as measured by the Bloomberg Dollar Spot Index, which tracks the greenback against 10 global trading partners.
$3.039 per gallon in central Illinois yesterday.
I saw $2.88 this morning, Pasadena, Texas (Houston area).
“I saw $2.88 this morning, Pasadena, Texas (Houston area).”
Go over to Pearland where Exxon is #2,47
this is welcome news
“Other countries such as Iran and Saudi Arabia will also feel the pinch as the budgetary break-even point for each country is $115 and $93 a barrel respectively.”
It’s welcome news for anyone who has to buy gasoline or anything that is transported by diesel powered engines.
It’s bad news for drillers, the Williston Shale, and people who thought the US would become an oil exporter.
I’m figuring on a pretty substantial slump in the oil patch. We almost always out drill demand when we get busy. I’m surprised that we have managed to drill apace of production declines and demands for so long. Harvesting the source rock and part of the 65% plus left behind in historical producing areas kicked that pace over the edge and we are over producing.
I was talking with a group of youngsters about this yesterday. They have never seen a bust in the oilfield and asked me if I had ever been through one. I said which one?
The slump of ‘79,
the mid-continent crash of ‘82,
the horrible crash of ‘86 when people in Houston just threw their house keys in the flower bed and left,
the early 90’s when the gas glut just would not go away,
‘98 when the Saudis outsmarted themselves again to keep market share and crashed the price,
‘01 after 9/11 when the global economy sank like a rock
‘08 when it happened again,
or the countless reorganizations and right sizing and down sizing and constant layoffs that covered most of the period?
break-even point for each country is $115 and $93 a barrel
Just a reflection of their desired governmental spending levels. If they applied the logic to US production, taxes and government spending to “break-even” our oil would be priced in the tens of thousands of dollars.
Unfortunately it will hit domestic shale/fracking efforts also...”break even” for them is about $90-$96/bbl.. http://www.businessweek.com/articles/2013-10-31/a-texas-oil-bubble-could-pop-due-to-low-prices
yep, right next to a $2.49 at shell
“It’s bad news for drillers, the Williston Shale, and people who thought the US would become an oil exporter.”
You forgot the bad news for the renewable greenies as well.
Right before an election in which all democRAT policies show how bad these elected idiots really are. Coincidence? Draw your own conclusions......
Would cheaper cost in fuel help the shale industry in regards of costs in cheaper fuel for transportion ? Fuel to run rigs ? Fuel for trucks that bring equipment to the rigs and oil fields ? The whole infrastructure ?
There must be a silver lining in all of this.
“Unfortunately it will hit domestic shale/fracking efforts also...”break even” for them is about $90-$96/bbl.. “
Every play has a variety of areas which can be identified as 1. Lucrative(money can be made at almost any crude price) 2. Modest(slightly commercial or slightly subcommercial) 3. Uneconomic(clearly subcommercial).
The amount of areas in each category expands or contracts dependent upon the rising or falling price of oil.
This is true whether in the Bakken, Eagleford or Permian.
So calling out a particular crude price as “the breakeven price of this basin” which is the price that drilling will stop is not really true.
It is also a fact that some plays which are more delineated, such as the Eagleford and Bakken, have already had the better (Lucrative) areas identified, and will not alter much drilling in these areas when prices drop as these areas will still be exploited.
For other basins where there is still the need to identify where the three different areas exist like the Permian, drilling will also not suffer dramatically unless prices go way down.
One reason for this is some players have laid some large amounts of money to obtain their acreage, and need to ‘prove up’ areas to retain acreage and will not be deterred with price decreases unless very dramatic.
Just saying, beware of the “breakeven price” for thinking where rig numbers will go.
“Would cheaper cost in fuel help the shale industry in regards of costs in cheaper fuel for transportion ? Fuel to run rigs ? Fuel for trucks that bring equipment to the rigs and oil fields ? The whole infrastructure ?
There must be a silver lining in all of this.”
Nice thought but the over-aching problem of weak commodity pricing will not overcome this.
Income loss is much greater than cost improvement.
I was listening to a panel of analyst and energy traders the other day, and they agreed that even at $60 dollars a barrel US producers would be making good profits, not that anyone expects to see oil go that low again.
Not as low as you think. World-wide central bank money printing, massive government debt, and progressive super-regulation have raised the price floor for basic commodities world-wide. The cost for everything is much higher.
I work in Agriculture commodities and see the concept daily. Truckers won’t drive and farmers won’t bother farming unless they are assured a certain price, and that price is a lot more than it was just a few years ago.
I would guess for oil, If 10-15 years ago the cost of marginal production was $50/barrel, its probably $85 barrel today.
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