While still volatile, oil prices continued to decline last week with New York futures closing at nearly a three-month low of $50.89 – down 3.5 percent for the week and 14 percent this month. In London oil futures followed a similar pattern with Brent also finishing at close to a three-month low of 57.10 – down 3.2 percent for the week and 10 percent this month. This was the third consecutive weekly loss for oil futures.
“The Economist has examined the books of the 62 largest listed exploration and production firms in America whose collective output is mainly from shale. The results suggest many first are more vulnerable than the bullish noises from their bosses suggest. There are three sets of concerns: the juicing-up of the results announced for the first quarter of 2015; high leverage; and the industry’s returns on capital.”
The Economist, July 4th issue
Last week US oil prices had their biggest weekly decline since March as concerns about over supply, the Greek debt crisis and China’s stockmarket plunge all came together to force prices down. Most of the decline came on Monday and Tuesday in the wake of the Greek Austerity referendum with New York futures trading below $51 a barrel, down $10 from where they had been in the previous week and London got close to $55 a barrel before a rebound set in. By Sunday night the Greeks reached a deal with the other Eurozone members over a bailout and Beijing “stabilized” its equity markets using draconian measures. New York futures closed out the week at $52.74 and London at $58.57.
“The initial [round of layoffs] was an absolute bloodbath to get rid of all the people who were not core, but if things don’t improve, they’re going to have to start cutting again. If the price of oil – or when the price of oil comes back—the question is whether we are going to have sufficient folks out there to meet the increased demand [for well completion services].”
Bob Gray, a partner in the transactions practice at Mayer Brown LP
The gradual down trend in oil prices which began in early May continues with New York futures closing the week at $55.52 and London at $60.32 – down about 13 percent from the spring highs. The Greek crisis; the Iranian nuclear negotiations; reports of near-record oil production by Russia and OPEC resulting in a circa 2 million b/d global surplus; the steep decline in the Chinese equity markets; and the announcement that the US drilling rig count increased last week after 29 consecutive declines all contributed to weak prices. At $55 a barrel, NY futures have now broken out of the $57-62 trading range that has obtained since early May.
Crude oil prices were little changed last week, with New York futures trading around $60 a barrel and in London around $63. As has been the case for several weeks, the global oversupply of crude, the Greek debt crisis, and China’s weak economy have kept downward pressure on the markets. Trader hopes that the summer driving season will soon push up the demand for gasoline and expectations of an economic rebound continue to support oil prices. The uncertainties of the Iranian nuclear negotiations cut both ways with an agreement likely leading to a large increase in available crude, while failure of the talks would lead to increased tensions or worse in the Middle East.
“I am now more convinced than ever that 2015 will see the peak in world crude oil production. I have very closely studied the charts of every producing nation and my prognosis is based on that study. I see many nations in steep decline and most every other nation peaking now, or in the last couple of years, or very near their peak today. These include the world’s three largest producers, Russia, Saudi Arabia and the USA.”
–Ron Patterson, peakoilbarrel.com
“New scientific models supported by the British government’s Foreign Office show that if we don’t change course, in less than three decades industrial civilization will essentially collapse due to catastrophic food shortages, triggered by a combination of climate change, water scarcity, energy crisis, and political instability.”
Nafeez Ahmed, investigative journalist
“The debt that fueled the US shale boom now threatens to be its undoing. Drillers’ debt ballooned to $235 billion at the end of the first quarter, a 16 percent increase in the past year, even as revenue shrank. The problem for shale drillers is that they’ve consistently spent money faster than they’ve made it, even when oil was $100 a barrel. The companies in the Bloomberg index spent $4.15 for every dollar earned selling oil and gas in the first quarter, up from $2.25 a year earlier, while pushing U.S. oil production to the highest in more than 30 years.
“The question is, how long do they have that they can get away with this,” The companies with the lowest credit ratings “are in survival mode.”
Thomas Watters, oil and gas credit analyst at Standard & Poor’s in New York
After the usual amount of volatility that we have seen for the last three months New York oil futures closed at $59.61 per barrel on Friday, down 35 cents for the week. London futures, which have been drifting generally downwards since the beginning of May, closed at $63.02, down $1.24 for the week and about $4 a barrel in the last ten days. If the major energy watchers are correct, the oil markets remain oversupplied by about 1 or 2 million b/d, which is setting the trend, but with numerous factors ranging from the Greek debt crisis to the US rig count influencing trader decisions, oil prices continue to be volatile with the markets reacting to the day’s news.
