Oil headed for its biggest monthly drop this year on speculation that increased OPEC supplies and threats to demand in China will prolong a global glut.
Futures slid as much as 2.4 percent in New York, extending their drop to 20 percent this month. U.S. crude stockpiles are almost 100 million barrels above the five-year seasonal average, while exports from southern Iraq rose to a record this month. Producers from BP Plc to Royal Dutch Shell Plc have started a new round of cost cutting as prices decline.
Oil’s worst month since December paces a slump across raw materials amid expanding surpluses and concern that slower economic growth in China will crimp demand. Commodities also dropped as the dollar gained on signs that the Federal Reserve may increase rates. Sanctions on oil exports from Iran, holder of the world’s fourth-biggest crude reserves, may be lifted following a nuclear accord on July 14.
“China, Iran, the dollar and selling by investors have helped drive oil prices lower this month,” Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, said by e-mail. “But as U.S. production and inventories seem to be coming down, the downside potential for prices is limited.”
West Texas Intermediate for September delivery lost as much as $1.17 to $47.35 a barrel in electronic trading on the New York Mercantile Exchange and was at $47.60 at 11:04 a.m. in London. Total volume was about 17 percent below the 100-day average for the time of day. Prices have lost more than 20 percent from their closing peak this year on June 10, meeting a common definition of a bear market.
Global Supplies
Brent for September settlement slipped 57 cents to $52.74 a barrel on the London-based ICE Futures Europe exchange. Prices are down 17 percent for the month. The European benchmark crude traded at a premium of $5.13 to WTI.
U.S. crude inventories have been bolstered by the fastest pace of production in more than three decades. Output averaged 9.6 million barrels a day through June 5, the most in weekly data compiled by the Energy Information Administration since January 1983.
Oil’s global surplus is also buoyed by record output volumes from leading OPEC members. Exports from the south of Iraq, the second-largest producer in the Organization of Petroleum Exporting Countries, climbed to 3.06 million barrels a day, a spokesman at state-owned South Oil Co. said Monday.
The Bloomberg Commodity Index of 22 raw materials dropped 9.8 percent this month, the most since September 2011. It fell to a 13-year low this week.
Plantagenet on Fri, 31st Jul 2015 11:22 am
The oil glut continues. Look for Iranian oil to start coming onto the world market in 3-6 months.
shallow sand on Fri, 31st Jul 2015 12:08 pm
Yes, USA will be back to importing more oil from the Middle East and Russia.
Per Gulf OPEC producers and Russia, that is the way it should be. Their oil is much cheaper to produce than North American oil in broad terms.
The recent earnings reports from US oil companies show, on the whole, that they have no ability to be cash flow positive or even cash flow neutral with prices at $60 WTI (second quarter) much less below $50 WTI.
Whiting Petroleum just burned $27 of cash for every barrel of oil equivalent they produced. Therefore, their production (by their own projections) will fall from 170,000 BOEPD in the second quarter of 2015 to 153,000 BOEPD in the fourth quarter of 2015, and will go even lower in 2016. They spent 2/3 of 2015 CAPEX the first six months and were only up 2% on production. They owe over $5 billion of long term debt, and have no ability to even pay any of that back without cutting CAPEX below $1 billion, which would then drop their production so low they would have trouble making interest payments. BTW, they are the number 1 oil producer in the Bakken of North Dakota. The numbers show they need $90+ WTI to be cash flow neutral and maintain 170K BOEPD.
The Whiting story is pretty much the one playing out with all public oil companies. The largest integrated producer, ExxonMobil, reported its lowest quarterly earnings since 2009 and its upstream business segment was cash flow negative yet again. ConocoPhillips, the largest non-integrated upstream producer, just took on $2.5 billion of additional debt in the first six months of the year, had no earnings, and is guiding lower production for the third quarter, 2015. Their production fell from Q1 to Q2.
I realize consumers do not care where USA gets the oil, they are getting cheap gasoline. I 100% understand that sentiment.
However, in order for the price to stay anywhere near present, or even in the $60 range, one or more of the following needs to happen:
1. World wide demand needs to fall. At present, no sign of this happening. Maybe alternatives will come on that can displace $2-$2.50 gasoline (price in USA terms).
2. The world needs to become more dependent on cheaper oil sources, such as from the Middle East and Russia, and those sources need to greatly increase production, even above current levels. It appears that both Iran and Iraq could greatly increase production, so hopefully they will be able to do so to continue to supply USA with cheap fuel.
3. Non-OPEC/Russian needs to find a way to produce oil at a much cheaper cost. Maybe cut all the workers in the industry to minimum wage, with no benefits? That would be a start?
I am open to other suggestions from our corn friends marmico and nony. I am sure they can come pile on some more. Especially since marimico’s trucking company is paying 1/2 for diesel, thanks to Saudi Arabia building more refining capacity.
Hopefully we can continue to keep Iran, Iraq, Russia and Saudi Arabia as solid allies so we can pay under $3 at the pump.
Nony on Fri, 31st Jul 2015 12:25 pm
Choices:
A. $50/bbl. OPEC pumps all out. US producers hurt.
B. $100/bbl. OPEC cuts back production. US producers eat steak.
——
I pick A.
Oh…and Sand. Quit whining and run your business. You aren’t the only people that have to compete. No one owes you a living.
Plantagenet on Fri, 31st Jul 2015 12:28 pm
Nony and most other posters here want cheap oil so they can drive their SUVs to the Mall and spew CO2 into the air. Get a bicycle, dude.
Anyone who is worried about climate change should want EXPENSIVE oil to reduce oil consumption and CO2 emissions.
Nony on Fri, 31st Jul 2015 12:39 pm
https://www.youtube.com/watch?v=hFDcoX7s6rE
Plantagenet on Fri, 31st Jul 2015 1:01 pm
Thx Nony.
That was interesting.
CHEERS!
shallow sand on Fri, 31st Jul 2015 2:05 pm
Nony,can always count on you!
Nony on Fri, 31st Jul 2015 2:14 pm
🙂
shortonoil on Fri, 31st Jul 2015 3:23 pm
Crude prices are now in the $47 range, and that is very bad news for the world. Producers are now not generating enough revenue to replace the reserves that they are extracting. Capex and E&P are going to plunge if prices don’t rise:
http://www.zerohedge.com/news/2015-07-31/exxon-earnings-carnage
The smaller fields that the world is becoming dependent upon deplete out faster than the Giants of years ago. North Sea wells often hit water breakthrough in less than five years. Lead time on the development of these fields is often 6 to 10 years. If these fields are not being development now, they will not be ready by 2021 or 2022 when older fields go into catastrophic decline.
As anyone who has been following our posts is aware we began predicting the price decline over a year ago:
http://www.thehillsgroup.org/depletion2_022.htm
Prices are now 38% below what our model projects. The reason why is not exactly understood, but is likely that it has nothing to do with Saudi Arabian, or Iranian production. As prices fall producers can be expected to increase production as much as possible to compensate for lost revenue.
The danger lays in the price reverting back to the graph ($77 for 2015) and producers not re-initiating E&P because of the present prolonged low price. That extended low price may have permanently damaged their balance sheets to such an extent that many of them may no be able to procure adequate funding.
We may have six months remaining in which prices can recover before the world’s producers experience irreparable damage. The future health of the world’s economy now revolves around that recovery.
http://www.thehillsgroup.org/
shallow sand on Fri, 31st Jul 2015 3:26 pm
Just to play the speculation game, how do the US public oil companies react if:
1. WTI drops below $40?
2. WTI drops below $30?
3. WTI drops below $20?
There is a point in there where, after a couple of months, most conventional production in the US would simply be shut in.
Do the shale drillers who committed to “drill through the downturn at any price,” pull the plug?
Nony on Fri, 31st Jul 2015 3:51 pm
Shale drillers have laid down 60% of their rigs and cut capex by 50%. That’s not “drill at any price”.
at 60, they start inching up the rigs again (we saw that a couple months ago).
At high 40s’ they will probably cut a few again. (Give it a couple weeks, contracts take time to unwind or to start.)
At 40, the cut a buttload (technical term) of rigs
At 30, all the oil rigs go down.
At 20, production starts getting shut in on many wells.
And even though you didn’t ask…at 70, the disco opens again.
And at 100, they start doing crazy things like drilling the TMS.
Nony on Fri, 31st Jul 2015 3:53 pm
futures strip sees 55 around end of year 2016. Market sees a middle ground, ‘sand. Not crazy low. Not back to comfort. Enough pain to do some major damage. But not enough to turn everything off.
shortonoil on Fri, 31st Jul 2015 4:35 pm
“Enough pain to do some major damage. But not enough to turn everything off.
Quit the everything is beautiful crap. In five years we’ll be running on fumes if prices don’t recover. E&P is already going through the floor. Your list above reads more like a five year old’s wish list to Santa than a critique of production costs. Lifting costs on more than a third of the world’s wells is now more than $40. Average water cut in the US is more than 90%. How much does it cost to lift 9 barrels of water to get one barrel of oil 4000 feet. Here’s a hint: oil weighs 302 lbs per barrel, water 359 lbs, gravity is 32 ft/ sec*sec. Figure it out and get back to us.
shortonoil on Fri, 31st Jul 2015 4:39 pm
Hint #2, when they can’t make lifting cost, they shut them down!
shortonoil on Fri, 31st Jul 2015 4:44 pm
Hint #3, average world water cut is now 47%, that puts a 10,000 foot well out of business at today’s price.
idontknowmyself on Fri, 31st Jul 2015 5:03 pm
We are now in danger of losing the commodity extracting part of the international supply chain. No commodities no supply chain, no goods and die off right away.
A lot of commodities are under stress because of low price of commodities. Not only oil but cooper and steel are also under stress.
Added to that, that the financial elite, fund managers, pension fund managers, hedge fund managers are losing faith in the value of paper money.
Just look at what Bill Gross said recently and others have said too.
There is a real danger that international trade stop in the next year if things keep going this way
Davy on Fri, 31st Jul 2015 5:25 pm
NOo, you just got slap screwed by the short.
Boat on Fri, 31st Jul 2015 6:41 pm
Davy NO, that is just a bunch of hog wash. Prices are down because the world is producing to much. Simple mismanagement because all the worlds players are greedy and want the other players to be pushed out or fail. But there is plenty of capital in the wings when oil goes back up which it has to do. Simple supply and demand. Davy you and short need to read about supply and demand and get off these crazy theories.
Apneaman on Fri, 31st Jul 2015 6:46 pm
“it has to do” “it has to do” “it has to do” “it has to do” “it has to do”
Davy on Fri, 31st Jul 2015 6:59 pm
Boat, I will agree prices are down because the world is a mess. That is the system dynamic angle. There is also the thermodynamic angle called depletion. You cannot dismiss either boat. Above ground and bellow ground issues are a reality of our foundational commodity oil. You can discount thermodynamics in relation to oil for the sake of argument but you cannot dismiss it. You corns want to pick and choose your causalities. If it does not fit the happy ending scenario it is dismissed. Go grind some corn boat but I ain’t eating your corn bread.
Boat on Fri, 31st Jul 2015 7:32 pm
Apneaman,
If the 2.5 mbpd overproduction goes away history shows prices will have already adjusted up or be in the process. This is called the futures market. Read some about that.
Apneaman on Fri, 31st Jul 2015 7:33 pm
Davy, he doesn’t even know what you are talking about.
Apneaman on Fri, 31st Jul 2015 7:42 pm
boaty, yer book learning ways is just too gol darned discombobulating fer me.
Nony on Fri, 31st Jul 2015 9:04 pm
Put on the glasses…because I have come here to kick ass and chew bubblegum…and I’m all out of bubblegum.
https://www.youtube.com/watch?v=Wp_K8prLfso
RRP, RIP
Makati1 on Fri, 31st Jul 2015 10:09 pm
Many comments amounting to nothing more than guesses and opinions. If oil goes down, the economy hurts. If oil goes up, the economy goes down. There are no sure winners in the current world economy, but the fools in the Wall Street Casino believe there are and they alone know what is going to happen … lol.
I know also. The bottom is about to fall out and I will enjoy the show when it happens. This disaster blockbuster will cost tens of trillions and is about to be released on the public.
Boat on Fri, 31st Jul 2015 11:45 pm
Mak,
Why does the economy hurt when oil goes down.
All it means is the stock isn’t getting as big a dividend.
for most of us the price of gas means nothing because we have to work to survive. I did a quick check on my family. At 2.23 vrs. 3.80 per gallon my family is saving 4,628 per year. Thats 1/2 a truck payment for a used truck that will get better gas mileage.
See boys them are real numbers for a real family. The money that was transferred from my bank account to oil the last 5-6 years is finally going the other way. I would like gas prices to last another 5 years although I predict only a 3 year break and that is only if Iran gets the deal from Congress. If the deal doesn’t go through or Putin acts up again. All bets are off.
shortonoil on Sat, 1st Aug 2015 8:13 am
“Davy you and short need to read about supply and demand and get off these crazy theories.”
Get out your copy of Samuelson and take a look at Supply/Demand curves. Supply curves slope up and to the right, Demand curves slope up and to the left. World Supply, and price have gone up over the last 100 years; that is, the Supply curve has sloped up and to the right; as it is supposed to. Demand has followed supply almost exactly, that is, it also has sloped up and to the right. It should have been sloping up and to the left. It is backward! Oil has not followed a Supply/Demand relationship for the last 100 years. Yet it is insisted that we not following “crazy theories” and follow an economic theory that does not, has not, and will not apply to the present situation. If economic theory, which is a pseudo science at best, is going to be used to contradict thermodynamics it would be advisable to at least use the correct economic theory!
For the last 100 years oil price was driven by the cost of production. The value of oil to the economy was greater than its price. Demand matched what ever the industry could produce. The cost of production went up, production went up, and consumption went up. It was not a supply/ demand relationship. It was a production cost driven relationship. The multitude of “specialist” who insist that oil is a Supply/Demand relationship have apparently never looked at a supply/demand curve. Another possibility is that they can’t read a graph?
If anyone wants to insist that oil is a supply/ demand relationship we’ll take that under consideration as soon as we appraise their theory that the moon is made out of green cheese!
http://www.thehillsgroup.org/
Boat on Sat, 1st Aug 2015 10:05 am
short,
There were billions that came before us and billions that will come behind us and none of them are going to be any smarter. Graph or no graph. There are geopolitical factors/fear factor. How do you graph that. All the problems making oil hard to drill and ship in libya, Nigeria, Iraq, Iran, Russia, Ukraine etc. How you going to graph that. Shell is drilling in the ice, you drawing lines on paper yet? Kuwait is building another 11 billion refinery. I suppose their graph tells them something different.
Value to oil is your opinion, you act like this is some kind of anomaly. Before fracking nat gas went up and down with supply. With fracking the supply became the land of the plenty and the prices have crashed. Where is your value to life graph at the moment. Where was the graph that predicted that phenomenon.