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Global Economic Fears Cast Long Dark Shadow On Oil Price Rebound
Submitted by Evan Kelly via OilPrice.com,
After bouncing around, oil prices finished off the week with just a bit less volatility than when it started the week. WTI stayed at around $46 per barrel as of midday on September 4, with Brent holding at $50 per barrel.
Aside from supply and demand fundamentals in the oil markets, central bank policymaking is another major factor determining the trajectory of oil prices. The European Central Bank hinted that it might consider more monetary stimulus to help the stagnant European economy. Oil prices rose on the news. The markets, however, are waiting on a much more significant announcement from the Federal Reserve this month on whether or not the central bank will raise interest rates. This summer’s market turmoil – the Greek debt crisis and the meltdown in the Chinese stock markets – has dimmed the prospect of a rate increase.
Moreover, the global economic unease may begin to reach American shores. On September 4, the U.S. government released data for the month of August, revealing that the U.S. economy added only 173,000 jobs, a mediocre performance that missed expectations. Although an economic slowdown is no doubt a negative for oil prices, the news could provide enough justification for the Fed to hold off on raising interest rates. A delay in a rate hike could push up WTI and Brent.
Although a slew of Canadian oil sands projects have been cancelled due to incredibly low oil prices, several large projects were already underway before the downturn. With the costs of cancellation too high, these projects continue to move forward. When they come online – several of which are expected by 2017 – they could add another 500,000 barrels per day in production, potentially exacerbating the glut of supplies not just in terms of global supply, but more specifically in terms of the flow of oil from Canada. Canadian oil already trades at a discount to WTI, now at around $15 per barrel.
That means that when WTI dropped below $40 per barrel last week, Western Canada Select was nearing $20 per barrel. With the latest rebound to the mid-$40s, WCS is only around $30 per barrel. But with breakeven prices for many Canadian oil sands projects at $80 per barrel for WTI, oil operators in Alberta are no doubt losing sleep over their current situation. One important caveat to remember is that unlike shale projects, Canada’s oil sands operate for decades, so the immediate downturn does not necessarily ruin project economics. However, with a strong rebound in prices no longer expected in the near-term, high-cost oil sands projects are probably not where an investor wants to be.
Low oil prices continue to take their toll. Bank of America downgraded BP to “underperform” and warned that its dividend policy faces risks.
The EIA released a report this week that showed that there would be little effect on gasoline prices if the U.S. government lifted the ban on crude oil exports. In fact, gasoline prices could even fall because refined product prices are linked to Brent much more than WTI, so more supplies on the international market would push down Brent prices. The report lends credence to the legislative campaign on Capitol Hill to scrap the ban, a movement that is picking up steam. On the other hand, although few noticed, the EIA report also said that the refining industry could lose $22 billion per year if the ban is removed.
So far, many members of Congress have been reluctant to weigh in on this issue for exactly that reason: it pits drillers against refiners, both of which are powerful political players. But with the potential blowback from a spike in gasoline prices no longer a huge worry, the oil industry is gaining a lot of allies in its attempt to lift the ban. However, there is an elephant in the room: the 2016 presidential election could blow up any chance of meaningful energy legislation next year. Although several Republican candidates have come out in support of lifting export restrictions, the fear of attack ads could scare away others. If the issue becomes bogged down in presidential politics, it could ultimately kill off the legislative push.
Saudi Arabia’s King Salman arrived in Washington on September 4 to meet with U.S. President Barack Obama. The two leaders will discuss the Iran nuclear deal, a deal that the Saudi King had strongly opposed from the start, but has since begrudgingly warmed up to following security promises from the United States. If they can manage to stay on the same page with the Iran deal, the two leaders will then discuss the ongoing conflicts in Syria and Yemen. There is obviously little to no prospect that such intensely complicated conflicts will get sorted out in the near future, so more modest goals for the trip include simply building trust between the two countries. Although long-term allies, Saudi Arabia has become more mistrustful of the U.S. President following the thaw in relations between the U.S. and Iran. The trip follows what the media has called a “snub” when King Salman declined to come to Washington this past spring for a summit of other Gulf state leaders.
An oil spill closed part of the Mississippi River after two tow boats collided on September 3. One of the boats was carrying slurry oil, which spilled into the river. One of the ruptured tanks holds 250,000 gallons, but the exact amount that spilled was unknown. The Coast Guard is working with the boat’s owner – Inland Marine Services – to determine the extent of the damage.
Russian President Vladimir Putin met Venezuelan President Nicolas Maduro in China this week, and the two sides apparently discussed ways to stabilize oil prices. Maduro says that they agreed on “initiatives” to address low oil prices, but did not elaborate with details. In all likelihood, Maduro is engaging in a degree of bluster and wishful thinking. Neither side has the capacity to cut oil production as both are facing varying degrees of economic and financial crisis. However, earlier this week oil prices briefly spiked on news that Russia might be willing to negotiate coordinated action. Prices subsequently retreated once expectations subsided.
In nuclear power news, France’s EDF announced yet more delays at its Flamanville reactor, France’s first nuclear reactor in more than 15 years. The reactor was supposed to be completed in 2012 at a cost of 3.3 billion euros. But multiple delays have now pushed the start date back to the end of 2018 at the earliest, with costs ballooning to at least 10.5 billion euros. The delays are a familiar problem with the new generation of nuclear reactors, just as they were with the previous models. To be sure, building nuclear power plants is highly complex, but delays and cost overruns have plagued the industry, and each setback damages the technology’s competitiveness. When France and other industrialized countries were building up their power sectors in the ‘60s, ‘70s, and ‘80s, there were few other alternatives. But, with cheap natural gas and increasingly cheap renewable energy, nuclear power developers can ill afford setbacks.
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Yep. I have stated for years that there is plenty of oil. As the price goes up, more oil will hit the markets.
The low oil prices are a symptom of a bad worldwide economy. My *guess* is that low oil prices are here to stay for quite a while.
Depending on the health of the economy (ours being a sick one), oil can be expensive at any price.
Go ahead. Lift the fucking ban on exporting crude. The US already consumes more crude than it produces. The dumb motherfuckers want to export stuff that we don't have, and they're not going to get to play middle man much more than they already are.
Republican presidential front-runner Donald Trump leads Democrat Hillary Clinton head-to-head, according to a new poll released Friday.
The poll by SurveyUSA finds that matched up directly, Trump garners 45 percent to Clinton’s 40 percent.
http://www.msn.com/en-us/news/politics/poll-trump-beats-hillary-head-to-...
And Deez Nutts moves ahead of Jeb Bush ... who still thinks the Iraq War was a success.
Respectfully, I disagree with your "dumb motherfucker" assessment.
I believe the people pulling the EIA's strings are actually very smart motherfuckers with nothing but their best financial interests in mind.
I'm just a plain-spoken, salt-of-the-earth yokel, so what do I know? But my common sense tells me: less domestic crude supply = higher refined product prices in the longer term.
Except its a global market and higher prices will crush the "consumer," and thus the economy.
"Change you can believe in," ... suckas!
Refined products are already being exported. The ban is only on crude oil.
Right now I'm working up a design for a small tea kettle refinery setup, just a thought experiment don'cha know.......
My point is simply that depending on how much money consumers have to spend, anything can be expensive. In the case of oil, if consumers don't have enough money to cover production costs, supply will dry up, and oil will become increasingly unavailable, thus unaffordable.
It's called depression.
Seems the balance of trade would improve and put some jobs back in the energy sector? Also selling stuff abroad can't be to bad of an idea as others (Saudi's/Brits/Norway/Iran/Iraq/Libya/Liberia/Venezuela/etc) prosper from it? I suppose if you're a Washington type you probably first determine the impact on your investments, +/- votes, then impact on your, party then state (also votes) and finally the nation (or likely not).
We consume more oil than we produce. What, exactly, are we going to export?
Exactly. The last numbers I saw showed the US producing around 7.5mbd and consuming near 19mbd. After 10 years of the shale ponzi we are still in a very sticky situation and that oil we produced wasn't cheap you just haven't paid for it yet.
Plenty of oil, but not enough stateside refineries
Thanks tree huggers, and global warmers
38BWD22, FWIW, I used to work OSV's, (currently working a Saturation Dive Vessel). A former co-worker from my last company just got a memo from the CEO, it stated that our aspect of the offshore industry should expect it to take 3-5 years to recover.
The CEO pretty much has his eggs in one basket, (Shell) hell, his office is in Shell One Square in NOLA.
My Boattrash buddies are working for about 1/2 of what they were a year ago, if they're working at all...
I could elaborate, but I think you've got the picture right already..
I was in the awl bidness for two and a half years out of college long ago. Right during a boom. I worked coastal TX, LA and did a couple of hitches offshore.
I do understand the severe swings up & down in the oil industry's cycles.
3 - 5 years, wow, it's really bad then.
Perhaps only the very low cost producers will make money, while the Giants go after all the soon-to-be cheap O & G assets.
Yep, it's always been cyclic, but usually recovers quickly.
I think you nailed it. There will be lots of assets changing hands, and in the end we'll see fewer, yet larger oil companies.
Lots of companies can "play" this game, (especially @ 100+per BBL) but it takes big, deep pockets to "stay" this game.
I guess you weren't around in the 1980's. It didn't recover until 2004. The 2008-2009 recovery was due to QE. Once QE ended, prices went back down to where they belong.
I wasn't offshore in the 80's.
Maybe the land based oil didn't recover until 2004, but 2000-2003 I spent 330 + days per year offshore and couldn't buy a relief. Note; that was working engine room though.
So long Canada, we hardly knew ye.
How well do you know Texas?
Well enough to know that places like Hobbs and Roswell might as well be part of West Texas.
Crude oil prices in the mid-$40 range have dealt a blow to production in the Eagle Ford Shale and other shale basins across the United States.
Figures from the Baker Hughes Rig Count released on Sept. 4 show new drilling in the Eagle Ford has fallen down to 93 active rigs. This marks the third week in a row that the rig count is below 100.
http://www.bizjournals.com/houston/morning_call/2015/09/eagle-ford-rig-c...
Moar of Barry's 'Legacy.'
Next up, Iran dumps a glut of oil on the market after the Kenyan removes the sanctions.
So, we are all reduced to arguing about their interests, quite pathetic we are as humans, sheep is the correct word.
Force them to lose the greatest loss.
With all the efforts of propagrandizing how flush the world is with oil, I wouldn't be surprised if next year at this time oil will be back at $100 plus. After all that is exactly how the big boyz keep us muppets where we belong.
Low oil prices put a pinch on "the bad guys". It keeps them from doing "stuff we don't like". Until Syria is empty, oil will stay low.
Nuclear power doesn't run tillers, combines, harvesters, or trucks.
Oil = food in the modern world, and there are more and more mouths to feed.
United Nations was already caught in that scam. Whats your next con man idea?
Oil for Food Program - YouTube
Farm machinery can run on steam or a long extension cord. No sarc. It would be annoying at worst compared to diesel and still a lot easier than using manual labor or oxen.
Trucks can also run on steam, and so do trains. So coal.
Oh, coal can be gasified and the gas piped to an ICE. More coal.
Running a steam engine is/was a lot of work.
The last I checked, there's no shortage of oil or fuel. The emerging world economies are crashing, which means less economic activities such as driving and shipping.
The oil peak theory is like the jackass who stated driving 55/mph will save lives.
Please watch.
Social changes of the 1970's
http://www.c-span.org/video/?c4530658/social-changes-1970s
Jackasses are everywhere, amigo!
"Non illegitimi carborundum"
Let me phone Jeb Bush to give me his Rosetta Stone translation.
/sarc
Look at Buffett's latest re-investment:
"Berkshire Hathaway takes $4.48B stake in refiner Phillips 66"
http://www.cnbc.com/2015/08/30/berkshire-hathaway-builds-stake-in-refine...
The Orifice of Omaha also bought big into IBM and Deere lost his ass there. He might end up making money on DE in the long term, but IBM is dead money.
http://www.kwch.com/nissan-recalls-nearly-300000-vehicles/35103862
The only news that can possibly be moar bullish these days is if they recalled 3,000,000. Who needs brakes, anyway?
Renault sold it's defective brakes to Nissan & Infiniti. Save costs.
/LOL
Iljin (of Korea) makes many of the Hub & Bearing Assemblies for Renault...
I will have our people down in Peru report back if they hear anything about bad brakes in Nissans there (especially the "Tiida", a model not sold in the USA, hmm).
EDIT: Thanks, Handful of Dust, for the link. The cars affected are Nissan Versa models, which are sold in Peru but the Versa is apparently NOT the Tiida.
We will never, ever burn all the oil. But the oil that we get will continually cost more and more to produce in terms of energy invested. At some point, it will take all the energy that a barrel of oil contains to produce another equivalent barrel of oil. At that point, or well before, the industrial civilization that was built on plentiful cheap oil will have crashed and burned. If you ask me, we are already well on our way.
I doubt it. Central Asia has barely been touched. Fracking costs have been cut in half. I believe the frackers can survive at $65 oil now compared to $90 last year. The arctic has also not been explored at all.
Bottoms Up Line: We've got us these factors keeping oil low for the foreseeable future (That's to say at least the next 2-5 years but maybe even 10):
- Demand simply underperforming supply, the world economy is collapsing, mind you!
- Iranian oil coming online and later more Iraqi, Libyan and new oil wells elsewhere even from the North Sea
- U.S. shale still pumping under hedges some till 2017
- Natural gas steadily used more and more and dirt cheap because it can be found anywhere around the globe
- Coal is still widely used and still very cheap and reliable energy source
- More sun-energy sources used despite the low oil prices
- Canadian oil sands projects coming online, like mentioned, several of which by 2017 (And what will happen with the Keystone pipeline under the next U.S. President?)