Oil prices fell by nearly 3 percent last week to settle at $77.62 in London and $67.59 in New York. This was the third weekly decline in a row that has taken prices down by about $10 a barrel since early October. As has been the case for several months, prices fall on reports of excess supply or the possibility of lower demand and increase on concerns about what the Iran sanctions due to begin next week will do to supplies.
“The well-established market consensus that the Permian [basin] can continue to provide 1.5 million barrels per day of annual production growth for the foreseeable future is starting to be called into question.”
Paal Kibsgaard, CEO of Schlumberger
“Two-thirds of US oil producers failed to live within their means in the second quarter, even as oil prices have risen almost 40% over the past year to more than $70 per barrel. Fifty major US oil companies reported they collectively spent $2 billion more than they took in.”
FactSet’s analysis of free cash flow
Crude oil prices have been volatile thus far in October, hitting a four-year high to start the month before falling nearly $8 a barrel in the two weeks. At the close on Friday, New York futures were at $69.12 and London at $79.78. Market sentiments have changed this month with more traders worrying about the economic problems facing China than how effective the US sanctions on Iranian exports will be.
“Higher oil prices seem inevitable and, in our view, $100/barrel is easily within reach.”
Bank of America/Merrill Lynch
Oil futures fell by over $4 a barrel on Wednesday and Thursday but then stabilized on Friday to close at $71 in New York and $80 in London. Behind the selloff were a sharp drop in the equity markets, profit-taking in the wake of a $14 a barrel price increase since mid-August, and concerns that the Sino/US trade war may reduce global demand for oil. EIA, IEA, and OPEC revised their forecasts downward for the size of next year’s demand increase. The International Monetary Fund cut its forecast for global growth to 3.7 percent for 2018 and 2019, down from a previous estimate of 3.9 percent, and the EIA reported that US crude stocks increased by 6 million barrels the week before last.
“The amazing thing [the Trump administration] is saying is human activities are going to lead to a rise in [atmospheric carbon] that is disastrous for the environment and society [a 7-degree Fahrenheit increase from pre-industrial levels]. And then they are saying they are not going to do anything about it.”
Michael MacCracken, senior scientist at US Global Change Research Program (1993 – 2002)
Oil prices continued to climb last week, with London futures hitting $86.74 a barrel on Wednesday, $10 higher than they were a month ago. Later in the week, profit taking and announcements from the Saudis and Russia that they were going to increase production drove prices lower. Whether the Saudis, Russia, and their close allies can increase production by enough to cover the decline in Iranian exports remains contentious. At week’s end, oil prices had settled to $74.34 in New York and $84.16 in London for a $10 a barrel difference.
“The sanctioning of LNG Canada would mark a potential turning point in the LNG market, signaling the industry’s appetite to invest has returned. Even new large-scale greenfield projects are back on the agenda, after a dearth of project financial investment decisions over the last few years.”
Saul Kavonic, Credit Suisse Group AG’s director of Asia energy research
Oil prices continue to increase primarily on concerns that the sanctions on Iran and the collapse of Venezuelan production will lead to shortages in the coming year. Last week London futures, which are more vulnerable to the Iranian situation, climbed by about $2 a barrel to close at $82.78. London futures are on track for a fifth quarterly advance, a streak not seen since the first half of 2008. Iranian exports of crude and condensates have declined by 800,000 b/d from April to September, according to the Institute of International Finance. Analysts expect a reduction of anywhere between 500,000 and 1.5 million b/d in Iranian supply due to the sanctions, with most expecting Saudi Arabia to take the lead in filling any supply gaps.
”Assuming that the balancing act between declining and growing [oil producing] countries continues (from Mexico through to Canada) the whole system will peak when the US shale oil peaks (in the Permian) as a result of geology or other factors and/or lack of finance in the next credit crunch, and when Iraq peaks due to social unrest or other military confrontation in the oil-producing Basra region. There are added risks from continuing disruptions in Nigeria and Libya, steeper declines in Venezuela and the impact of sanctions on Iran.”
Matt Mushalik, Australian engineer and oil industry analyst
