Category: Peak Oil Review

Oil prices rose for the third consecutive week with New York futures closing at $35.92 a barrel and London at $38.72. Prices in London are now up 3.9 percent for the year. Behind the price rise is a continuing drop in the number of drilling rigs operating in the US and the announcement by several major shale oil producers that they plan to suspend new drilling until prices recover. Exactly where profitability is these days is in dispute with some drillers contending they can make money from shale oil if prices rise into the mid- $40s as compared to $60-70 two years ago. Some of these claims are for the benefit of the banks who have become very wary of the oil industry in recent months. The downside, of course, is that if shale oil producers start increasing production if prices get into the mid-$40s, they could easily drive them back down again with unsaleable production.

Oil had a good week for a change with New York futures rising 3.2 percent to close at $32.78 and London climbing 6.3 percent to close at $35.10. This time, there was more than just wishful thinking behind the price increase as pipeline outages shut in 600,000 b/d in Kurdistan and 250,000 b/d in Nigeria to cut global exports by 850,000 b/d. In both cases, it is unclear as to just when the pipelines will reopen. In Nigeria, the outage was due to an underwater leak while the situation in Kurdistan likely is related to one of many wars taking place in the region.

The oil markets climbed through Thursday last week in hopes that the Saudi-Russian “pact” to freeze oil output would lead to lower production and higher prices. After it became clear on Thursday that countries adhering to the pact were already pumping oil as fast as they could and had little to no interest in lowering production unless forced to by geology, the markets began to fall. In New York, where futures had traded close to $26 a barrel the week before last, prices peaked at nearly $32 before falling back to close Friday at $29.64. London followed a similar pattern, climbing from $30 to nearly $36 before falling away to close at $32.91. This was the third mini price spike we have had in the past year based on stories that an agreement was in the offing that might cut production.

Oil prices plunged for four days last week, settling at a recent low of $26.21 in New York, a drop of nearly 30 percent since the start of the year, and $30.06 in London a 20 percent drop this year. The inevitable rebound came on Friday with a vigorous jump for the day of $3.23 or 12.3 percent in New York to close at $29.44, and $3.30 or 11 percent to $33.36 in London. This time the rebound was started by rumors out of the UAE that OPEC, while not considering a production cut, might be willing to consider halting further increases in production. This rumor was seen by traders as a willingness on the part of OPEC to take charge of the oil supply situation for the first time since the crisis began. Another factor contributing to the decline was the long weekend in the US and the unwillingness of traders to be caught in short positions with prices so low. As one analyst said, “every time someone in OPEC comes out and says we are willing to cooperate, there is always a knee-jerk reaction on the part of oil traders.” “No one wants to be caught selling futures at the bottom of the move.”

It was a volatile week, with prices falling on Monday and Tuesday due to the oversupply situation and traders deciding that a grand agreement between Russia and OPEC to cut oil production was unlikely. However, prices climbed on Wednesday as talk of the Russia/OPEC deal revived, the US dollar underwent a sudden price drop, and a hedge fund that that held $600 million in short oil futures positions was liquidated. On Thursday and Friday, the markets were back to believing that the Saudis were not going to cut production as Riyadh lowered their prices for oil being sold to Europe and Asia as part of the new competition with Iran. A big jump in US crude and gasoline inventories announced on Wednesday helped with the downward pressure. At week’s end, New York futures closed at $30.89, down 8.1 percent for the week and London closed at $34.06, down 5.4 percent for the week.

Last week there was a surge in oil prices based on rumors and statements from Iraq’s oil minister and a Russian pipeline official that Russia and the Saudis might be considering a meeting to discuss “coordination” of their oil production. The merest hint of a supply cut was enough to send traders into a frenzy. Short positions were covered and prices rose from below $30 a barrel to nearly $36 in London. The story was quickly denied by numerous OPEC officials and even by Russia’s deputy prime minister, but oil prices stayed firm closing at $33.62 in New York and $34.74 in London.

Oil prices touched 12 year lows of just above $27 a barrel on Wednesday and then rebounded sharply to close above $32 on Friday. Other than the major east coast snowstorm in the US and the expectation there would be more demand for heating oil, there was no significant news to touch off the rebound other than traders feeling there was not much downside for oil prices left and that it was time to take profits. The rapid rebound was helped by the record size of the short positions held by hedge funds. As these were liquidated, the rebound accelerated to gain some 21 percent from the Wednesday lows. Hints by the European Central Bank last week that there could be a further stimulus coming also supported the move.

Crude futures settled below $30 a barrel on Friday with New York closing at $29.42, down 10.5 percent for the week, and London closing at $28.82, down 13.7 percent for the week. The global oil glut, a stronger dollar, and reports that the sanctions on Iran were about to be lifted contributed to the move. The now familiar factors of a circa 1.5 million b/d surplus in global oil production; a strong US dollar, up 20 percent since mid-2014; the Chinese economy continuing to slacken; and problems on the horizon for US growth were the main reasons behind the price slump. A couple of new concerns have arisen lately. Analysts are worried about the optimism being expressed by US shale oil producers over the likelihood of higher oil prices just ahead. Many US drillers are not trying to cut back on production but simply tying to hold things together until later this year. Another factor is reduction in demand for diesel used to drill and frack oil wells which is down by nearly 50 percent in the last 18 months. The drop in demand for diesel along with warm weather is leading to large surpluses of distillates.

Oil prices plunged again last week from a high above $38 a barrel on Monday to a new low of $32.10, touched by NY futures on Thursday. For the week New York futures were down $3.88 or 10.5 percent to close at $33.16. London’s Brent was down 10 percent for the week closing at $33.55, the lowest closing since June of 2004. The usual factors of too much oil and too little demand as the US and Chinese economies continue to weaken were behind the move. A number of the factors that usually move oil markets are beginning to change. For example, another large drop of 20 units in the US rig count failed to drive the market higher for more than a few minutes as traders have come to recognize that changes in the rig count do not translate into short-term supply changes. Likewise the increase in enmity between Iran and the Saudis is having very little impact on prices as the markets believe the harsh rhetoric is unlikely to lead to hostilities – at least in the short term. Even a US jobs report which showed the creation of 292,000 new jobs, 39 percent more than expected, did little to move prices higher. Usually traders see more people working as a sign that there will soon be more demand for gasoline, but not this time. Fundamentals are ruling the markets.

There were no surprises during the last week of trading for 2015. Prices moved sideways, with an occasional flurry of short-covering briefly offsetting the steady downwards trend of the markets. At the close Thursday, New York futures were at $37.04 a barrel, down 30 percent for the year, and London was at $37.28 down 35 percent during 2015. On Thursday, the EIA released US crude production data for the first nine months of 2015 showing production falling from a 44-year peak of 9.7 million b/d in April to 9.3 million in October. This drop in production was less than many had anticipated given the severe cutbacks that have taken place in drilling rigs and capital expenditures.

Despite oil’s fundamentals pointing to lower prices, the oil markets rebounded in thin trading last week. New York futures which were trading below $36 on Tuesday closed Thursday at $38.10, nearly a 9 percent jump. In a similar fashion Brent, which on Monday touched its lowest point since 2004, climbed to close out the week at $37.89. We now have US oil selling above Brent, which makes it rather hard to sell on the international markets unless a refiner is looking for very light oil and is willing to pay a premium.

Oil prices continued to fall with London closing on Friday at $36.88, down 3.8 percent for the week, and New York closing at $34.73, down 2.5 percent for the week. A surprise and unexplained jump of 17 units in the US rig count announced on Friday helped the decline. Prices are now approaching an 11-year low. New highs in US crude inventories, including a 1.4 million barrel jump in the stocks at Cushing, Okla., and unusually warm weather across the US and Europe, continue as major reasons for the decline. The outlook for oil prices remains gloomy. OPEC will keep its output at 32 million b/d for the time being and Iran is expected to be increasing its exports in the next few months. Talk of a bargain between OPEC and Russia to jointly lower crude production was quashed by Moscow late last week. Some are now saying that it will take two years to eliminate the excess crude stockpiles after supply and demand are brought back into balance.

Oil prices tumbled for six straight sessions following the OPEC decision to maintain production levels the week before last. At the close Friday prices were down 11 percent for the week with New York futures closing at $35.62 a barrel and London at $37.93. This is the lowest close for oil futures since the 2008-2009 recession. Adjusting for inflation, oil prices this low were last seen in 2002.

The long-awaited OPEC decision came on Friday. With the Saudis and their close allies adamant that they would not cut production unless Russia and Iran and other OPEC members agreed to cut too, the meeting had no where to go but to continue existing policies. Indonesia was readmitted into the cartel and the output ceiling was adjusted to 31.5 million b/d reflecting the realities of the addition of Indonesia and of actual current production. While the cartel will reconsider the issue in June, the final decision led to considerable pessimism among traders. Global over-production is now running some 1.8 million to 2 million b/d and there is a good possibility that Iran will add at least another 500,000 b/d to the glut in the first six months of 2016. OPEC is hoping that stronger demand for oil will erase at least some of the over-production next year, but many see overproduction continuing into 2017.

Oil prices were little changed last week despite the the downing of the Russian warplane which temporarily sent prices higher on fears of a wider conflict affecting prices. At week’s end New York futures were down 19 cents for the week at $41.71 and London’s Brent was up 20 cents at $44.86. For November, oil prices will be down about 9 percent. There seems to be general agreement among observers that prices are headed still lower. Moscow announced that it will not be sending a high-level official to the OPEC meeting thereby foreclosing on the hints that Russia and OPEC were about to come up with a deal to cut production and raise prices.

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.