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OPEC Policy Ensures U.S. Shale Crash, Russian Tycoon Says

At today’s prices of just over $70 a barrel, drilling is close to becoming unprofitable… Read More OPEC policy on crude production will ensure a crash in the U.S. shale industry, a Russian oil tycoon said. The Organization of Petroleum Exporting Countries kept output targets unchanged at a meeting in Vienna today even after this year’s slump in the oil price caused by surging supply from U.S shale fields. American producers risk becoming victims of their own success. At today’s prices of just over $70 a barrel, drilling is close to becoming unprofitable for some explorers, Leonid Fedun , vice president and board member at OAO Lukoil (LKOD) , said in an interview in London. “In 2016, when OPEC completes this objective of cleaning up the American marginal market, the oil price will start growing again,” said Fedun, who’s made a fortune of more than $4 billion in the […]

Posted On : Published By : Tom Whipple
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Oil: The Good, the Better, the Ugly

Oil prices have fallen a long way this year. They might fall much further still. Crude prices have fallen 36% since their summer peak, then sent into a tailspin by  the failure of OPEC, the cartel of oil producing countries accounting for 40% of global supply, to trim its output quotas. And history suggests prices can fall substantially further. It’s worth bearing in mind that for nearly two decades to 2005, crude oil prices largely ranged between $20 and $40 a barrel in today’s money. The average inflation-adjusted price of West Texas Intermediate oil since 1970 is a little under $55 a barrel compared with a little under $70 now. That’s not to say that’s how far they’ll drop. A rapid technical snap-back is always a possibility. But the fundamentals seem stacked towards lower rather than higher prices for now. Which will make for some interesting economic dynamics. Current […]

Posted On : Published By : Tom Whipple
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Why oil prices will bounce back … eventually

When an asset class takes a swan dive off the cliff, fortunes can be lost trying to call the bottom. It’s often impossible to tell whether the asset in question is on a suicide run or undergoing a short-term correction. And so it is with oil. Oil prices are down by a third since June and are less than half of their 2008 high of $147 (U.S.) a barrel. So time to buy? If I knew how to call bottoms, I would not be a miserable, ink-stained wretch; I would be filthy rich and living in a villa on the Amalfi Coast or Côte d’Azur, martini in each hand. But allow me to present four ideas of why the foundation for a compelling oil price bounce-back is being set even as prices tumble. I’m just not going to tell you when that might happen, because I have no clue. […]

Posted On : Published By : ASPO-USA
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Peak oil in retrospect

It is the year 2004. With record high prices at the gas pumps and what seemed like a largely oil-explored world, it was an occasion to do what engineers do best: identify technical problems and devise solutions. With what seemed like a real “peak oil” energy shortage looming ahead, the need for reduction of electric power use had a direct impact on electronic design, resulting in the emergence of low-power circuit design. Is that emphasis still required? While some decry the demise of the ecosphere due to the burning of hydrocarbon fuels, an equal problem is the anticipated inability to supply those fuels to meet the growing world demand. This article looks in retrospect at the problem, largely through comments from senior oil engineers inside the industry, and then surveys what happened. The Oil Conundrum We go back a decade, to 2004. Glenn Morton, a geophysicist who headed North […]

Posted On : Published By : ASPO-USA
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Brent Oil Trades Near 4-Year Low as OPEC Targets Shale

Brent traded near its lowest closing price in four years as OPEC braced for a price war with U.S. shale producers after taking no action to relieve a glut. Crude in New York headed for the biggest weekly drop since 2011. Futures were little changed in London, having fallen 11 percent this week. OPEC will maintain its collective output target at 30 million barrels a day, Saudi Arabia ’s Oil Minister Ali Al-Naimi said after discussions in Vienna yesterday. The group’s policy will ensure a crash in the U.S. shale industry, predicted Leonid Fedun , the vice president of Russia ’s OAO Lukoil. Crude has collapsed into a bear market amid the fastest pace of U.S. production in three decades and signs of weakening global demand. OPEC wants a fair price and isn’t “sending any signals to anybody,” Secretary-General Abdalla El-Badri said. The 12-member group, which pumps 40 percent […]

Posted On : Published By : Tom Whipple
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OPEC Fails to Take Action to Ease Glut as Crude Plunges

OPEC took no action to ease a global oil-supply glut, resisting calls from Venezuela that the group needs to stem the rout in prices. Futures slumped the most in more than three years. The group maintained its collective production ceiling of 30 million barrels a day, Ali Al-Naimi , Saudi Arabia ’s oil minister, said yesterday after the 12 nations met in Vienna. Brent crude dropped as much as 8.4 percent in London, extending this year’s decline to 34 percent. Oil tumbled into a bear market this year as the U.S. pumped the most in more than three decades and conflict in the Middle East and Ukraine failed to disrupt supply. While OPEC’s 30-million-barrel limit has been in place since 2012, the group actually produced almost 1 million barrels more last month, data compiled by Bloomberg show. “OPEC has chosen to abdicate its role as a swing producer, leaving […]

Posted On : Published By : Tom Whipple
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Oil Seen in New Era as OPEC Won’t Yield to U.S. Shale

OPEC’s decision to cede no ground to rival producers underscored the price war in the crude market and the challenge to U.S. shale drillers. The 12-nation Organization of Petroleum Exporting Countries kept its output target unchanged even after the steepest slump in oil prices since the global recession, prompting speculation it has abandoned its role as a swing producer. Yesterday’s decision in Vienna propelled futures to the lowest since 2010, a level that means some shale projects may lose money. “We are entering a new era for oil prices, where the market itself will manage supply, no longer Saudi Arabia and OPEC,” said Mike Wittner , the head of oil research at Societe Generale SA in New York. “It’s huge. This is a signal that they’re throwing in the towel. The markets have changed for many years to come.” The fracking boom has driven U.S. output to the highest […]

Posted On : Published By : Tom Whipple
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Oil Price Drop After OPEC Decision Is ‘Terrible’: Iraq Minister

The plunge in crude prices after OPEC’s decision to keep its production ceiling unchanged is “terrible,” according to Iraq ’s oil minister. Brent crude, the global benchmark, fell the most in more than three years after the 12-member group completed talks and traded at $72.50 a barrel in London today. That’s 29 percent less than the $102.20 Iraq needs to balance its budget, according to International Monetary Fund estimates. “We are trying to follow up what is going on, then we will assess the whole issue,” Oil Minister Adel Abdul Mahdi said in an interview today in Vienna. “I already had a meeting with my team. We will try to put the right policy to face the situation.” Iraq is the second-largest producer in the Organization of Petroleum Exporting Countries, which left its daily output target unchanged at 30 million barrels yesterday. The group considered a cut of 5 […]

Posted On : Published By : Tom Whipple
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OPEC Inaction Signals Pain for Refiners With Costly Oil

OPEC’s failure to address oil’s slide to near $70 a barrel by refraining to cut its output target threatens profits at Asian refiners that filled inventories at higher prices. Brent crude plunged the most in three years yesterday after the Organization of Petroleum Exporting Countries said it will keep its collective production at 30 million barrels a day. South Korean refiner SK Innovation Co. (096770) predicted its fourth-quarter earnings will be hurt as a 38 percent fall in prices since a June peak widens losses from stockpiles. While a fall in crude cuts raw material costs for refiners, the benefits are limited because they have to account for oil accumulated when the market was higher. OPEC’s decision not to reduce output creates potential for further declines in prices, according to Goldman Sachs Group Inc. “The operating environment for the country’s refining industry is expected to worsen in the short-term,” […]

Posted On : Published By : Tom Whipple
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OPEC’s Decision and Tumbling Oil Prices Hammer Oil-linked Stocks and Currencies

The tumbling price of oil hammered commodity-dependent currencies as well as shares in oil and gas companies Friday, a day after the Organization of the Petroleum Exporting Countries left its output target unchanged , diminishing hope of any imminent respite for the ailing commodity. In early trade, Brent crude was an additional 1% lower at $71.86 a barrel, its weakest level in four years, having already plummeted nearly 7% on Thursday. It later picked up slightly. Analysts had estimated OPEC would need to take 1 million to 1.5 million barrels a day off the market to support oil prices, which have fallen by more than 30% since the summer, but its members didn’t bow to the market pressure. Russia’s ruble, which this year has also been pummeled by geopolitical tensions and resulting sanctions, hit yet another all-time low against the dollar, while fellow oil-linked currencies such as the Canadian […]

Posted On : Published By : Tom Whipple