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Page added on July 6, 2015
Oil crushed
Oil is expected to spiral even lower, as concerns about global growth collide with record production and the potential for more supply from Iran.
West Texas Intermediate crude futures plunged 7.7 percent Monday and were in official correction territory, with a decline of more than 11.5 percent since July 1. Brent was more than 6 percent lower.
Oil plummeted on fresh worries that Greece’s anti-austerity referendum could lead to its exit from the euro zone, creating negative fallout across the region’s economy.
“The drop in oil is going to stop, but not for now,” said Francisco Blanch, head of global commodities and derivatives research at Bank of America Merrill Lynch. “You’ve got every cylinder pointing south. You don’t want to try to grab this falling knife.”
Other factors that contributed to the drop were apparent movement in Iran’s nuclear negotiations and new focus this weekend on China’s stock market collapse. The stronger dollar could also add pressure, as the euro skids.
Strategists see the floor for WTI oil at around $50, but some say it could continue to fall toward the lows of about $42 from mid-March.
WTI crude futures settled down nearly 8 percent Monday, down $4.40 at $52.53 per barrel.
“This week is a huge week. We have two things that people in the markets have been worried about literally for years, and they’re both happening at the same time,” said Michael Wittner, head of commodities research Americas at Societe Generale. “The oil market is a little twitchy,”
Strategists say the market is worried about potential Greek contagion that would impair the European economy. But the situation is unclear, and the uncertainty could stretch on for weeks, which could also dampen economic activity and keep the market on edge.
“On the Iran deal, I think people are waking up to the fact that Iran is … saying it wants to double its exports once the ban is lifted,” said John Kilduff of Again Capital.
Blanch said while there is no agreement yet, the deal over Iran’s nuclear program appears closer and the market is beginning to price in the flow of Iranian oil.
“If a deal gets done this week, maybe it’s a few more dollars down. That may be a buying opportunity,” Blanch said. Blanch said the 30 million to 40 million barrels Iran currently has in floating storage could be on the market fairly quickly.
Negotiators have set a deadline of this week for the talks between Iran, the U.S. and five other powers. Iran is reportedly pushing for a complete lifting of the United Nation’s arms embargo.
Views vary on how quickly Iran will start to get more oil out onto the world market if there is a deal.
“I think oil markets understand very well, depending on what gets decided one way or the other, it’s going to be months,” said Wittner. “The only thing fast is the floating storage, but again, that’s going to have to wait until restrictions are lifted.”
Analysts agree it will take time for Iran to reach its potential. “You’re going to have 600,000 barrels a day of incremental supply heading into the middle of next year,” Blanch said. “All of that in my view creates a very negative backdrop for the oil market.”
As for China, traders have been watching its high-flying stock market melt down.
“So far, it’s the stock market. The argument is whether the Chinese government is worried. Are they acting aggressively on the stock market because they are worried about the real economy?” said Wittner. “That’s the issue. It’s too early to say on that one.”
But markets have been worried about slower Chinese growth, and the China stock market collapse has the potential to hurt the broader population of individual investors.
Blanch said another catalyst for lower prices will come with the Fed’s interest rate hikes, expected to begin later this year or early next year, because they could have a negative impact on emerging market economies.
A more near-term negative for crude, however, could be the slowdown in U.S. gasoline demand, expected to be peaking this week with Fourth of July holiday driving.
Blanch does expect some relief with a pending slowdown in U.S. oil production, so far holding near 40-year highs of 9.6 million barrels a day. He said the lower prices could make production to decline by 500,000 barrels a day, before picking up again some time next year.
Strong U.S. production has also been met by a pickup in Saudi Arabian production, also believed to be near record highs.
Gene McGillian, an analyst with Tradition Energy, said the market is waiting for new data on traders’ positioning, expected later Monday. As of last week, longs outnumbered shorts by a wide margin.
“The question is, does the market hold $50 and do we pivot back to the $40s?” he asked, adding at some point the longs could start bailing, adding further pressure on prices.
33 Comments on "Oil crushed"
Northwest Resident on Mon, 6th Jul 2015 5:51 pm
At the tip of the iceberg we see Greece, China, Venezuela, a handful of ME countries, Ukraine and others ALL swirling rapidly down the sewer tube of financial and social collapse.
Lurking just under the surface, providing the enormous platform on which all the above lunacy plays out, is the rotting energy delivery industry — it isn’t delivering — not enough, and for far too high a price demanded for what it does deliver.
It doesn’t get any better from here on out. Just worse. More countries will be joining the above-mentioned list in the not too far distant future. Soon enough, the whole world will be clinging desperately to the tip of that iceberg, trying to be the last one to slip into the frigid dark waters of total economic collapse.
BC on Mon, 6th Jul 2015 6:46 pm
NWRes, you’ve said it better than I could.
I would just add that the unprofitable US energy cost of energy extraction of Plant’s so-called “glut” is just what one would expect from the once-in-history, global, structural constraints from Peak Oil and “Limits to Growth” (LTG).
That is to say, we cannot grow real GDP per capita since 2007-08 with the price of oil above $40 AND profitably continue to increase the “glut” at $50 oil AND build out to scale renewables AND maintain indefinitely the fossil fuel infrastructure in order to support the foregoing.
These facts are unpalatable generally, prohibited from being said politically, and are the antithesis to the assumption of perpetual growth of population and resource consumption on a finite planet.
Plantagenet on Mon, 6th Jul 2015 8:00 pm
Nordent and BC totally don’t understand what is going on. Far from the energy industry “not delivering….enough”, the energy industry is delivering too much oil.
The world is experiencing a major oil glut—-and the drop in oil prices by 8% just today shows the oil glut is getting worse.
Cheers!
Makati1 on Mon, 6th Jul 2015 8:39 pm
Correct BC. And, NWR missed the biggest debtor, the US, in his list of countries “… swirling rapidly down the sewer tube of financial and social collapse.”
Perhaps the US Ministry of Propaganda is just better than Greece’. Or the US elite realizes that they need to cover their rapid decent with bigger lies?
Conditions in the US are actually worse than in the Great Depression, but they are being covered up with Charmin dollars and an owned MSM. 47,000,000+ on food stamps is a ‘soup line’ ~17,000 miles long. (6 people wide across the US from LA to Boston) 30+% unable to earn a living wage. Debt past their eyeballs for the younger generation, not future retirement for the older generation, med costs so high that most cannot afford to go to the doctors, etc. The US is already 3rd world. Most Americans just have not realized it … yet.
Jimmy on Mon, 6th Jul 2015 8:40 pm
A glut us what happens when economies collapse and don’t need all the oil being produced. It’s been an interesting few years; QE stimulating commodity prices so high that expensive reserves come into production followed by an economic collapse that renders it all unnecessary to the consumer. Inelastic products price warped between massive QE and brutal recession. The industry has whiplash. What Plant doesn’t understand is this glut ain’t like any other glut ever seen. It’s not so much a glut as it is a collapse.
BobInget on Mon, 6th Jul 2015 9:20 pm
If you had dozens of tankers at anchor each loaded with crude oil. Would you rush the stuff to market for $55 or less?
I would not.
I would first, potentiate a crisis (if able)
Next, having waited a year or longer, I hang another few months so as to use my oil not only for dollar gain but political influence.
IMO there’re fewer then 50 single hull tankers,
(forty million barrels) waiting for Iran to sell.
Perhaps another 50 at anchor owned by speculators. The planet uses 93 Million barrels per day. US alone MUST import seven million every day to round out 20 million burnt.
Besides, it’s not so much a euro problem as dollar inflation. When dollars get over priced,
oil, priced in USD’s must get cheaper so as not to make matters worse.
Big problems arise when even hurricane or war or both interrupt the well oiled supply chain.
Money, Money, Money.
E&P’s can’t borrow at $50 dollar oil. If E&P’s can’t borrow there will be NO oil or gas.
Greece uses slightly more oil then Oregon.
https://en.wikipedia.org/wiki/List_of_countries_by_oil_consumption
http://www.eia.gov/state/ (30th of 50)
(OR is 23rd in GDP)
https://en.wikipedia.org/wiki/Comparison_between_U.S._states_and_countries_by_GDP_(nominal)
BobInget on Mon, 6th Jul 2015 9:49 pm
NW Resident, as am I.
Every country mentioned , Venezuela et all are different. Each has it’s own set of problems.
I’ve worn a keyboard warning Venezuela, so indebted to Russia and China won’t have crude product remaining to export to US.
If China could import every barrel of crude available at these prices it surly would.
(China’s consumption up over 5% for the first 6 months. India’s Up over 6%.
How many fewer barrels will Greece consume for the balance of 2015? Ten thousand p/d? Twenty?
Russia cut off gas to Ukraine. I’ll bet oil gets cut as well.
I’m willing to bet you or anyone we won’t be talking about Greece at all in a month. We will however still be talking about Syria and Yemen.
Both, almost totally destroyed .Syria, Libya, Yemen, Sudan will happily trade places with Greece. Get a life Mr NW Passage.
Greece is a hangnail compared to fifty million refugees floating around seeking the safety of a plastic tarp, A meal of rice and beans.
Saudi Arabia is killing hundreds daily in Yemen.
IS is murdering hundreds in football stadiums.
Car-bombs are bursting in air and stock markets, oil prices take dive because one set of bankers can’t settle the books of another. These fuckers,
all, including you pussies can predict the end of humanity but can’t compare a financial crisis with human a genuine calamity.
Saudi Arabia is collapsing from within and oil prices drop because Greece can’t pay its bills.
Plantagenet on Mon, 6th Jul 2015 10:03 pm
Nordent’s claim that oil production is insufficient for current demand is silly. As the article notes in its first sentence, oil production is at record highs, and the surplus of oil is causing a major collapse in oil prices.
You can pretend there ins’t an oil glut, but it doesn’t change the fact that there is an oil glut.
Davy on Tue, 7th Jul 2015 3:23 am
Planter your oil glut does not mean it is a glut of affordable oil in a macro sense. You are as usual stuck in you narrow tunnel vision of a condition not realizing this condition is part of an event. IOW planter you are a child in a candy store seeing lots of candy but no idea where it came from.
Boat on Tue, 7th Jul 2015 4:42 am
I know $2.39 gas is more affordable than $3.75 gas just a while back. That would not have happened without an oil glut of 2 mbpd which is the current case. Why giving Plant hell like a lot of members do makes no sense. He is merely stating the obvious.
Boat on Tue, 7th Jul 2015 6:04 am
Bob,.. US alone MUST import seven million every day to round out 20 million burnt
NO, the US exports 4 mbpd for refinery profits. Not necessarily US needed oil.
dave thompson on Tue, 7th Jul 2015 6:04 am
Storing Crude has got to be an expensive zero sum gain. A crude tanker only can be profitable upon delivery and payment of said crude.
Nony on Tue, 7th Jul 2015 8:22 am
Davy, gasoline price is down and volume is up. If volume were down, that would be an indication of unaffordable oil (people not buying it, therefore price went down). Since volume is up and price is down, that is an indication of increased supply.
BobInget on Tue, 7th Jul 2015 9:07 am
Crude down again on ‘Takedown Tuesday’.
I can’t believe oil’s ‘crush’ has anything to do with fundamentals of supply and demand.
At the end of the day, oil is also a medium of exchange, money.
http://finviz.com/forex.ashx
Europeans, Asians, are trading euros for dollars.
If oil were to follow the USD few could afford oil.
Canada is getting punished for being America’s
last, most dependable oil exporter. (1.2768 to USD)
Lawfish1964 on Tue, 7th Jul 2015 9:59 am
Glut: n. an excessive amount, as in the production of a crop, often leading to a fall in price. https://www.google.com/search?site=&source=hp&q=glut&oq=glut&gs_l=hp.3..0l10.1318.1706.0.2006.4.4.0.0.0.0.126.422.2j2.4.0….0…1c.1.64.hp..0.4.420.xsW6AIadyc8
What does it matter what caused the excessive supply? A glut is a glut, regardless of the cause. We have an excessive supply of a commodity, oil, which led to a decrease in price, the textbook definition of a glut. Why the hang-up on what it’s called?
BobInget on Tue, 7th Jul 2015 10:22 am
As for Iran signing on to a total inspection deal,
forgetaboutit. Saudi aggression (in Yemen) put the kibosh on Iran’s pretense of a Nuclear (weapons) free MidEast.
These ‘talks’ have been ongoing now through two Iranian and US administrations.
Now delayed to Friday? It’s doubtful Iranian leaders can depend on the US or Russia to defend Iran against irrational Saudis.
I feel certain, by now Saudi Arabia has ‘the bomb’. After-all it was Saudi Financing that sponsored Pakistan’s “Islamic Bomb”.
http://www.huffingtonpost.com/news/islamic-bomb/
Unless the US can get KSA to return N weapons to Pakistan (unexploded) There can be no agreement.
Below a link from the Iranian government mouthpiece: Press TV
http://www.presstv.com/Detail/2015/05/17/411559/Saudi-nukes-arms-pakistan
It’s a sure pop Iran believes the Saudis have ‘The Bomb’. Another neighbor, Israel, now in cahoots
with the Saudis are reputed to have at least a hundred N warheads. That Israel/Saudi Alliance
alone should be enough to force Iran to scrap any agreement.
Here’s another disturbing article form an American news outlet, UPI
http://www.upi.com/Top_News/World-News/2015/05/08/Saudi-Arabia-considers-nuclear-weapons-to-contain-Iran/5461431092418/
GregT on Tue, 7th Jul 2015 10:33 am
“Why the hang-up on what it’s called?”
Because if we were in a glut of affordable oil, our economies wouldn’t continue to be contracting.
Oil is not just any other commodity. Oil is the key resource that fuels our economies. Our economies require oil in the $20-$25 per barrel range to allow continued economic growth. $50 per barrel oil, and $20 per barrel oil, are not the same thing.
Northwest Resident on Tue, 7th Jul 2015 11:40 am
Barrel count is way up, no question. But what they count as “oil” these days distorts the former meaning and significance of “barrel count”. It isn’t how many barrels of so-called oil are produced that matters, it is how much net energy that is extracted from those barrels and made available to the economy that matters. And at what price? It seems clear to me that the price of real energy (not barrels of oil) is too great to bear for an economy that was built and expanded on extremely cheap energy. The Glut is nothing more than an accumulation of barrels of oil and stuff they now call oil which nobody can afford to use. Only idiots would consider the current oil glut something worth crowing about daily, repeatedly, as if it was a good thing. Do such simple minded idiots exist? Sadly, yes, see if you can find one of them posting on this article — shouldn’t be too hard to find.
Greatest oil glut in history exacts its pound of flesh.
http://wolfstreet.com/2015/07/06/oil-falls-off-the-chart-crushes-hopes/
Lawfish1964 on Tue, 7th Jul 2015 2:29 pm
For me personally, the oil glut is a good thing. Keeps my gas expense down. Is it a good thing globally? Not sure. Probably a very good sign we’re at peak oil. I remember somebody saying peak oil won’t look like scarcity, it will be the greatest amount of oil ever pumped in a single day in history, so it should look like a lot. Does kind of look that way.
GregT on Tue, 7th Jul 2015 3:49 pm
“For me personally, the oil glut is a good thing.”
That’s because you’re not looking at the big picture. This supposed “glut” of expensive oil is not good at all for our monetary systems or our economies, and it is most certainly not good for you.
The oil age will not end for a lack of oil. It will end when the remaining oil can no longer support the growth necessary to keep our ponzi schemed systems from collapsing in on themselves. We already passed peak conventional affordable oil. We are already on the downward slope.
Makati1 on Tue, 7th Jul 2015 8:26 pm
GregT, there are those of us who understand what you are saying, and see the same future. We passed ‘affordable’ peak oil long ago. The rest is just a side-show until the fat lady sings.
Then there are a few of us who are so invested in oil that we cannot see the truth because it would destroy the picture of the future, particularly, our future. You cannot expect someone who’s income/career depends on oil profits, to see reality until it hits him/her between the eyes with a 2X4.
There are a few in between who just want to beat on their particular drum again and again, ignoring reality or facts. Those few are not likely to understand because they have blocked off any learning or they just like to upset others. I ignore them, for the most part, but they are entertaining.
The comment crowd here is more educational and entertaining than any article, if you want to see how we are reacting to events according to location and education/programming. That is why I read PO and comment.
Davy on Tue, 7th Jul 2015 8:46 pm
Damn, Mak, is it snowing in Manila? You actually said something clean without stink. Congratulations maybe you have turned a new leaf.
Nony on Wed, 8th Jul 2015 11:08 am
You’re being a dick, Davy. You are a lot closer to my politics than Maki, but I hate bullies. Just leave him alone instead of always trying to fuck with him.
Nony on Wed, 8th Jul 2015 11:15 am
ON topic:
http://www.reuters.com/article/2015/07/08/us-oil-prices-outlook-analysis-idUSKCN0PI0AU20150708
The insight has to do with movement (drop) of the further out futures price. The key insight is that this reflects something other than a “glut” (a temporary imbalance), it reflects a view on the long term supply demand balance.
Now feel free to go back to repeating comments and views rather than looking at new data and analyses.
marmico on Wed, 8th Jul 2015 11:34 am
Doomer-Davy who winters in the Bahamas and summers in Italy. The guy is a dick.
marmico on Wed, 8th Jul 2015 11:40 am
Back on topic. Peak what?.
Apneaman on Wed, 8th Jul 2015 11:50 am
Crude Oil Could Easily Go To $35 A Barrel
http://seekingalpha.com/article/3308395-crude-oil-could-easily-go-to-35-a-barrel
Apneaman on Wed, 8th Jul 2015 11:50 am
Crude Carnage Continues After Another Inventory Build & Production Rise
http://www.zerohedge.com/news/2015-07-08/crude-carnage-continues-after-another-inventory-build-production-rise
Apneaman on Wed, 8th Jul 2015 12:47 pm
There Must Not Be a Peak of Anything
http://patzek-lifeitself.blogspot.ca/2015/07/there-must-not-be-peak-anything.html
Nony on Wed, 8th Jul 2015 1:02 pm
If the price drops, I win because we have cheap fuel for the Hummer and POD takes it in the ass. And if prices are high, the shale bois start kicking it again. I win either way.
Damn, it’s good to be a cornie!
https://vimeo.com/56886652
Davy on Wed, 8th Jul 2015 2:04 pm
Marm, are you losing money? You sound bothered. I am out of the markets so good luck friend. Assholes make the worst losers.
shortonoil on Wed, 8th Jul 2015 8:46 pm
“If the price drops, I win because we have cheap fuel for the Hummer and POD takes it in the ass. And if prices are high, the shale bois start kicking it again. I win either way.”
It takes 7 to 10 years to develop an oil field. At $51/barrel (today’s price) reserves can not be replaced, and the economy can barely afford $51. In 7 to 10 years you have no oil!
BobInget on Thu, 9th Jul 2015 9:34 am
Rockman, could you give us your opinion on
the following paragraph.
(the thread concerned why production went higher as prices moved lower)
Many conventional oil & gas wells run on chokes long term to restrict production and limit the pressure at downstream facilities. Among other things, this helps improve the longer term performance of wells. Same with unconventional/shale wells but after XX months the choke is wide open and typically not long after that the wells move to artificial lift. It has been my repeated observation that when oil and/or gas prices decline, for many producers, their production actually increases because management directs operations to open up the chokes. The obvious reason is that management wants to offset the reduced commodity price with more production to maintain cash flows at the level promised to upper management and/or Wall Street. This goes on longer than one might believe. And in the current price environment, many of the less than prime credit producers need the cash flow to make debt payments. The increased production phenomenon is easy observed at the gathering system, plant, and even transmission pipeline level. Pipeline/plant throughput tends to increase when commodity prices decrease. Of course, if prices stay low enough for long enough, well drilling and completions CAPEX will eventually decrease and production will eventually follow suit.