Citigroup report: Worries of $33 oil leaving markets “nervy”

Fuel Fix ^ | August 19, 2015 | Jordan Blum

[thackney]

There’s a “conceivable reality” U.S. oil prices may plummet to a new 11-year low of $33 a barrel or lower this year, according to a Citigroup report released Wednesday as oil prices dipped to a six-year low near $40.50 per barrel.

The new “How low can oil go?” report contends that capital markets are “getting nervy” and one of the only ways to stop this downward trend is for North American shale companies to lose more access to capital during the next phase of borrowing negotiations in October, called redetermination.

In February 2009, closing U.S. oil prices last bottomed out at $33.98 a barrel during the Great Recession.

Oil prices are currently in a free fall from a variety of factors including a struggling Chinese economy, strong Saudi and Iraqi production, and the anticipated Iranian influx of oil as soon as next year.

Temporarily stable oil prices near $60 a barrel boosted false confidence from April through June and rig counts and production levels rose — only to see the bottom fall out since the beginning of July. Citi called it a “clearly false recovery.”

Citi sees mostly bearish pessimism the next couple years with oil futures showing prices near $50 a barrel by December 2016 and below $55 a barrel even for December 2017. Eventually, there should be a price breakout back to the $60 to $80 a barrel range, but that is not expected in the near future.

In the U.S., oil production is continuing with Cushing, Oklahoma storage near capacity and more crude simply being moved to the Gulf Coast as a storage alternative. Also, the glut is expected to build up in September as refineries undergo seasonal maintenance after record levels of gasoline production this summer.

Common sense dictates shutting down more North American production, Citi noted, “yet shutting down current production is both costly and can be permanent.” So causing such shutdowns likely will require lower prices over a more extended time frame.

In another report, Citi concluded that a fast V-shaped oil recovery or even a slower U-shaped bounce back will not occur. After an extended and ongoing drop in oil prices, a “series of Ws” is expected with U.S. production ticking up every time prices increase and, thus, driving prices back down.

[Osage Orange]

Moonbeam..and his cronies..

[SoCal Pubbie]

Actually I think the Feds make more.

Either way, my original post was simply groaning to the neighbor over the fence about rising gas costs locally during a period of declining crude prices nationally. Like complaining about getting laid off while the lazy brother in law keeps getting promotions. The two things may not be directly related but the result is still frustrating. Somehow that was misconstrued as some sort of statement of economic philosophy.

[Osage Orange]

I think the state and the feds are one in the same....