1. Oil and the Global Economy
After climbing to a mid-week high of circa $95 a barrel, New York futures settled on Thursday and Friday to close up a few cents for the week at $92.41. An unexpected increase in US crude stocks which are already abnormally high for this time of the year and a stronger dollar brought about by fears of an interest rate increase are thought to be behind the drop in US oil prices. London oil prices were slightly stronger last week, rising 0.4 percent on concerns about the closure of a recently reopened Libyan oilfield. Traders say that the abnormally low inventories at the Cushing, Okla. oil depot are partially supporting US oil prices. Supplies at Cushing, however, are likely to increase over the next few weeks as more refineries close for fall maintenance. Most of the geopolitical news last week was not particularly threatening to oil supplies.
There are concerns that OPEC may lower its official but largely meaningless output quotas when it meets in November. The recent decline in oil prices of nearly $15 a barrel is tempting speculators to store oil aboard tankers until prices recover. In recent weeks, traders are reported to have stashed away some 50 million barrels aboard floating storage. Most of this is taking place far from the US where next year’s oil futures remain closer to the current month. The US shale oil boom is expected to continue into 2015 with steadily increasing production for at least another 12 months. After that some believe that the spectacular increases in shale oil production will slow and that rapid declines will not be far behind.
Investor concerns are rising about the economic viability of shale oil as selling prices decline. According to the North Dakota government, Bakken shale oil currently is going for around $74 a barrel, down from $90 in June. Despite the major gains in reducing the costs of shale oil production, some are saying that it still costs $60 to $80 to produce oil from the Bakken shales. Some wells may already be economically marginal and others will join this category if prices fall further. Last week Continental Resources, the largest driller in the Bakken, announced that they were raising their capital budget for this year by $500 million to $4.55 billion because well completion techniques were becoming costlier.
resilience
