In reviewing BP’s latest Statistic Review of World Energy, the big story for world oil last year was obvious: the USA’s third straight record-breaking increase in average annual production. Just over 75% of the net increase in world oil production during 2014 came from the USA; add in Canada and 90% of the total increase came from North America. Throw in Brazil’s first significant increase in three years and you have all the world’s net gain in world oil production accounted for by three non-OPEC players. Production from all other producers combined was flat. So the question for 2015 is straightforward: will we see a repeat of those gains…and the flat-liners?
Peak Oil Review
New York oil lost 35 cents last week closing at $40.39 a barrel after having dipped just before settlement to $38.99, the lowest price since August. In London Brent closed up 1.1 percent for the week at $44.66. Prices were weaker in the US as nationwide crude stocks climbed by 252,000 barrels, but stocks at Cushing, Ok storage depot rose by 1.8 million barrels. The US rig count was down by ten last week, after a two-rig increase the week before. Russia and the Saudis continue to pump at or near maximum capacity. Most brokers are expecting that Iran will be back into the markets in the first quarter of 2016 at about 500,000 b/d day to start.
Crude oil prices fell by 8 percent in New York and London last week, closing at $40.74 and $43.61 respectively. Continued growth in global crude stocks and uncertain economic outlooks for China and the US are still seen as the cause of the price slump. Short covering by speculators who believed we had already reached the bottom of the slump and a strong US dollar contributed to the decline. On Friday the IEA reported that at the end of September global crude stocks were at a new high of at least 3 billion barrels and growing. The Agency is not able to track stocks in smaller countries so actual storage is somewhat higher.
After a bounce last Tuesday, oil prices continued to fall closing on Friday at $44.29 in New York and $47.42 in London, down 4.9 percent and 4.3 percent for the week respectively. While oversupply and weak demand remains the basis for the price decline, the jump in US employment with the prospects of higher interest rates and a stronger dollar helped with the decline on Friday. The Wall Street Journal’s Dollar index was recently at its highest level in 13 years against the euro, yen and other currencies.
It was a volatile week with oil prices falling on Monday and Tuesday, surging 6 percent on Wednesday and then stabilizing on Thursday and Friday. When it was over, prices were up for the week about 4.5 percent to $46.59 in New York and 3.3 percent to $49.56 in London. Crude prices have been more volatile this year than anytime since the 2008 crisis. Some of the large percentage moves we are seeing, however, are due to the relatively low prices as compared to recent years. The move on Thursday was generally assessed as being caused by computer trading signals coupled with a slightly bullish weekly stocks report. The report showed decreases in oil product stocks and crude in storage at Cushing, Okla. while overall US crude inventories continued to climb. On Friday another drop in the US oil-rig count was reported which led to a small price jump at the end of the day.
Oil prices continued to slide last week due to increasing inventories and a weakening Chinese economy. Prices have now fallen about $6 a barrel from the recent highs seen in late August and again in mid-October. New York futures closed Friday at $44.60 and London at $47.99 which is about at the bottom of the trading range we have seen since early September. Prices, however, are still some $4 – $5 a barrel higher than the lows of circa $40 and $44 a barrel set in mid-August.
Oil prices fell on Monday and Tuesday in reaction to the previous week’s surge and then stabilized around $47 in New York and $50 in London – down about 5 percent for the week. This is about $2 a barrel above the trading range that has obtained since early September. The downside was supported by a 7.6-million-barrel increase in US stocks and more bad news about the US and Chinese economies. The upside was helped by the 8th consecutive drop in the US rig count, a drawdown in US oil product stocks, a 76,000 b/d drop in US production, and speculation that Russia might join other exporters in orchestrating supply cuts. The overriding fundamental is that US crude stocks remain at an 80 year high of 468 million barrels – some 26 percent above last year’s levels and 22 percent above the five-year average.
Oil prices surged last week with NY futures trading above $50 a barrel for the first time since July before settling on Friday to close at $49.63, the biggest weekly rise in six years. London oil futures closed Friday at $52.65, up 9.4 percent for the week. The move was prompted by the falling US rig count which has many traders convinced that US production will fall much further; a weaker US dollar prompted by a lack of Federal Reserve movement to increase interest rates; and stepped up Russian involvement in the Middle East which is likely to prolong turmoil in the region. There continues to be disagreement among analysts as to whether last week’s move will send oil prices to higher trading ranges, or is simply a repeat of last August when prices surged $10 a barrel only to fall off in a week or so. While the US rig count continued to drop last week most other indicators suggest the markets will be weaker in the immediate future so that the week’s surge was simply a case of “hot money” chasing headlines. US crude and gasoline stocks continued to grow the week before last, and Goldman Sachs remains adamant that this oil rally is not going to last.
Last week oil prices remained in the month-old trading range of around $45 a barrel in New York and $48 in London despite several major geopolitical developments and much news affecting oil’s fundamentals. However, the general situation of too much oil production and slowing economic growth remained intact. During the week, Russia announced that its production hit a new post-Soviet high of 10.74 million b/d, and along with the Saudis, Moscow shows no indication of being willing to cut oil production. US production is now down about 500,000 b/d from the high set in June, but this still seems inadequate to ease the oil glut. US oil stocks have climbed in eight of the last ten Octobers due to refinery maintenance, and there is no reason to believe that this will not happen again this year.
Oil prices closed out the week about in the middle of the range where they have traded for the past month — $45.70 in New York and $48.60 in London. During September, prices bounced a dollar or two on news suggesting that demand for oil could increase or production might decline. Conversely, news suggesting that demand might sink or production might increase sent prices back down about the same amount. It appears we could be stuck in this trading range until there are better indications that the oil glut is shrinking; or more definitive news about the course of the global economy – particularly China’s; or there is some major geopolitical upheaval.
After some intra-week volatility, New York oil prices were unchanged for the week closing at $44.68. Brent, however, suffered a 3.2 percent weekly loss closing at $47.47. Much of the week’s oil-price action came on Friday after the US Federal Reserve announced on Thursday it was postponing any increase in interest rates. While such an announcement would normally support oil prices by lowering the value of the dollar, the oil markets jumped to the conclusion that the US economy must be in worse condition than is apparent and fell 5 percent in sympathy with the equity markets. A third weekly drop in the rig count did little to stem the tide as traders are getting use to the idea that small changes in the oil-rig count no longer have much impact on production.