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Page added on August 17, 2015
$10 Oil Up Ahead?
Oil prices hit their 2009 lowest this outgoing week, as the market is badly shaken by the renminbi’s devaluation in China, and the non-stop increase in pumping in both OPEC and North America.
Kristian Rouz — Global crude prices dropped to their 6-year lows during past three months, although summer is traditionally a peak season on the demand side of the oil market.
The ongoing rout in oil prices is generally expected to deepen further due to the abundance of oil supply, with major producers boosting extraction and exports, attempting to retain their revenues and market share, and Iran gradually returning to its full-scale market participation as well.
On the demand side, however, financial turmoil and broader economic complications in the world’s second crude consumer, mainland China, have indicated a further decline in energy imports, exacerbated by the renminbi’s slight devaluation.
Even the top oil consumer, the US, is more self-sustainable in terms of energy supply these days, as evidenced by the Obama administration’s recent move to allow oil exports to Mexico, a historic breach in the 40-year ban on US energy exports.
As downward trends are prevailing, the global oil market is dominated by bears with prices projected to slide unless global economic growth accelerates.
In the US, oil futures dropped some 30% since early June, their biggest decline since 1983, when the WTI oil contract was first introduced to the market.
That said, the current oil situation has by far outdone the 1986 ‘oil bust’, resulting from the price war between the US and the Saudis back in the day.
Now, there are a lot more market participants on the supply side, while the demand is shrinking dramatically amidst the mediocre economic expansion in most developed nations, and minor factors like the onset of clean energy and more economical technology of fuel consumption in both industry and transport.
The last time the oil prices declined over the heated summer season was in 2011. That year, during the June to August period, oil lost 21% of its value when the world’s biggest oil producers put in the market a stunning 60 mln bbl against the background of the French-led military operation in Libya.
On Friday, the US benchmark oil, WTI, dropped to $41.35/bbl, and this decline is far from over. Currently, the demand for oil in North America is above this year’s average and is projected to shrink as the autumn starts, with major refineries partially closing for maintenance, and a decreased use of transportation after the summer holidays are over is only to add to the slump.
According to US Department of Energy data, petrol consumption in the US hit its 8-year highest this year, reaching 9.7 mln bpd in July, but even such outstanding development gave but little support to the price of oil.
Meanwhile the once powerful global oil cartel, OPEC, has repeatedly rebuffed any allegations of possible cuts in oil extraction. The traditional oil producers are no longer a determinant factor in the oil market.
Amidst the oversupply of fuel, global energy trading is – for the first time since the early 1970s oil crisis – a downstream market again, meaning the market participants now have all eyes on the developments on the consumption side.
The global oil prices might drop to as low as $10/bbl, which is the cost production level in some of the OPEC nations. The Saudis are still waging a price war against the US private drillers, which started late last year. However, the supply side is determining the price, and one of the biggest factors to watch is mainland China.
The People’s Bank of China sent shockwaves across the world’s financial and commodities markets this outgoing week by having devalued its currency, the renminbi, in an attempt to spur its industrial exports, thus supporting its staggering growth.
The mainland’s currency extended losses during the week, performing its worst since 1994 and rendering the made-in-China goods cheaper, but also meaning dearer imports for the Chinese manufacturers and consumers.
Eventually, that might trigger an even greater decline in oil consumption by China, further depressing the global price.
Among the Middle Eastern factors, Iran is still drawing the most attention, with the nation’s petrochemicals exports rising this week after the international sanctions had been lifted. Iran’s crude exports are still expected to grow, adding to the bearish sentiment in regard to oil price.
By late 2016, Tehran is expecting to increase the country’s petrochemicals exports by 20-25%, as reported by the state-controlled news agency IRNA today. Albeit that might be a propaganda trick aimed at misleading the global market participants, there is little doubt that greater exports of crude oil and oil products from Iran are a matter of mere months.
Last year, Iran shipped some $14 bln worth of petrochemicals, which is below the pre-sanctions level of $18 bln worth of exports in 2011.
Another factor is Oman. The Middle Eastern nation’s oil extraction exceeded 1 mln bpd in July, with 894,000 bbl of crude and 107,000 bbl of condensate produced on a daily basis.
However, Oman’s exports shrank that same month by 13% compared to June levels, down to 797,000 bpd. That comes as little surprise as the biggest importer of Oman’s oil is mainland China, accounting for 69% Oman’s exports. Japan comes in second, buying 15% Oman’s oil. The rest goes to the Republic of China, Singapore and Thailand.
Meanwhile, in the US, money managers cut net long-term crude futures and options.
This week, oil-related financial instruments dropped to their lowest since 2010. The traders are still above the market as the oil itself is at its 2009 levels. Goldman Sachs, however, attributed the oil decline to the devaluation of the renminbi in mainland China, as it signaled a weaker global growth to the markets.
17 Comments on "$10 Oil Up Ahead?"
BobInget on Mon, 17th Aug 2015 6:15 pm
Dark sides of cheap gasoline:
http://www.oregonlive.com/pacific-northwest-news/index.ssf/2015/08/oregon_traffic_deaths_jump_in.html
More people are dying on Oregon’s roads this year, continuing the reversal of historic declines in traffic deaths seen during the Great Recession.
So far this year, 261 people have died in crashes on Oregon roads, according to the Oregon Department of Transportation, compared to 197 at this time a year ago.
On average, more than one person is dying on Oregon’s roads each day, putting the state on track to see 423 traffic fatalities this year. That would be the most since before the economy collapsed.
“In the last couple of years we reached 1970s levels of deaths – we were thrilled that had happened in Oregon,” said David Thompson, an Oregon Department of Transportation spokesman. “It’s very concerning that it’s gone back up. We don’t know if that’s a permanent trend or a blip.”
Plant says permanent. So, I googled to see if this trend is national. Yup.
http://www.detroitnews.com/story/news/nation/2015/08/17/traffic-deaths/31838807/
Here’s hoping cheap oil doesn’t kill you or your
lover’s children.
Given the rate of inflation, ten buck oil would be the lowest price in seventy years.
Fifty four years ago my first car, a 1932 Ford V8
roadster (with rumble seat). My buddies and I managed to get two bucks for gas and drove to Key Largo did some spear fishing and returned to Miami on four gallons ($1.52) with a gallon still in the tank (.38 cents).
Every single teenage male friend had at least one auto accident, none fatal.
This is as good a time as any.If this Wednesday’s
EIA repore shows yet another 100,000 B p/d increase in consumption. (To 20,500,000 Bp/d)
it’s gonna be difficult to ignore as has been the case for four week’s running.
The so called ‘glut’ just so happens to coincide
with the greatest driving renaissance of the century both here and abroad. Demand in China for instance is up 12.5% year over year. India,
6.5%. At some point Saudi Arabia will break under the strain plunging the world into a “What the fuck happened” wake up call.
Bloomer on Mon, 17th Aug 2015 8:38 pm
Crude oil could go down to $5.00 a barrel and we still be paying $1.30 for gasoline in Vancouver.
Boat on Mon, 17th Aug 2015 9:29 pm
Even the top oil consumer, the US, is more self-sustainable in terms of energy supply these days, as evidenced by the Obama administration’s recent move to allow oil exports to Mexico, a historic breach in the 40-year ban on US energy exports.
Glut of sweet oil will be shipped to Mexico only to be replaced by heavy crude that the refineries are set up for in the gulf.
Iran gradually returning to its full-scale market participation as well
Right, has the idea congress might stop the deal is more likely. Or right after the election it will be rescinded.
All the crap about diminished demand is flat wrong. Diminished projected demand, yes, but still growth in supply and demand net.
This article is wrong on so many levels.
Makati1 on Mon, 17th Aug 2015 10:35 pm
Boat, give me some references to support you assertions please. Mine do not agree with yours.
apneaman on Mon, 17th Aug 2015 10:59 pm
BobInget, when I ride the transit around the Vancouver area and look out/down on the drivers, I am amazed at how many are fiddling around with their stupid fucking stupid phones while in traffic. There are not enough Darwin awards to go around…………………………………………………………………
You killed me at hello: 26% of car wrecks involve phones
http://www.marketwatch.com/story/why-car-and-train-drivers-keep-talking-on-phones-2013-07-31
harm on Tue, 18th Aug 2015 3:47 am
$10/bl?? How about $1? I want the stuff so cheap anyone can have “Zoolander” style gas station parties!
paulo1 on Tue, 18th Aug 2015 8:42 am
Bloomer, you forgot to add Per Litre!!
BobInget on Tue, 18th Aug 2015 12:00 pm
Yup, $42.35 oil WTI ?
True or false?
Bloomberg:
“Drillers from Russia to Canada, the world’s second- and fourth-biggest oil producers, sell crude in U.S. dollars while paying most operating costs in local currencies. The Canadian dollar dropped to an 11-year low against its U.S. counterpart this month while the Russian ruble trades near a six-month low”.
The loonie, still discounted 30% to bucks.
BobInget on Tue, 18th Aug 2015 12:30 pm
Apneaman, Congrats for using public transport.
I believe public conciseness, at least in the US
is getting more aware of mobil device deadly distractions.
Not so much in Nicaragua where I’m privileged
to spend winters. Taxi, bus, drivers are constantly checking their phones for texts. It gets so bad sometimes I feel the need to watch traffic myself in vain efforts to ward off certain death. The worst, jitney type transport. These dudes need to fill the car to make a profit. It’s no use warning them, male or female, either.
Almost every evening’s TV news is filled with graphic footage of dead people laid out on roadsides.
Only really cool, blessed, dashboard shrines are truly effective at avoiding accidents. I just happen to have a limited number of these for sale.
Just send $25 US/ $32.50 CAN to my home address ; de la entrada Bo La Planta 1/2 cual sur, 10 metro abajo … SJ del Sur, Nicaragua
If you act today, I’ll throw in a special praying
cloth, blessed of course.
Richard on Tue, 18th Aug 2015 1:23 pm
According to ‘Houston we have a problem” a 2009 release film, it was the deal with America and Arabia that led to the Soviet Empire’s collaspse financially, they couldn’t pay for the conflict in Afghanistan.
“That said, the current oil situation has by far outdone the 1986 ‘oil bust’, resulting from the price war between the US and the Saudis back in the day.”
BobInget on Tue, 18th Aug 2015 1:52 pm
KSA will, eventually ‘pay the price’ for this aberrant behavior. Mark these words.
Venezuela has MORE actual oil reserves then KSA. In point of fact Venezuela is also suffering more then any oil rich Gulf States.
Under Russian technical guidance and Chinese backing Venezuela will someday slowly usurp KSA’s dominance over oil markets.
Ven’s proximity to US and S. American markets, oilsands, Islamic scarcity, make it the next ‘swing producer’ by 2025.
Watch for Iran, Iraq, Venezuela, Russia as the next ‘OPEC’ nucleus.
Saudi Arabia is a suicide bomb riding around in a five million dollar German tank.
Makati1 on Tue, 18th Aug 2015 10:04 pm
BobInget, your view of the oil situation is as close to spot on as I have seen lately. If the Empire of Chaos doesn’t start a world war, your scenario seems to be the way things will evolve.
Interesting that it is the countries with the most remaining resources(oil) that seem to be the Empire’s ‘enemies’ list today. Iran, Russia, Iraq, and Venezuela.
North Korea has nukes but no oil, so they are mostly ignored. China has no oil but it has brass balls and is determined to remove the petrodollar, so it is on the hit list also.
We live in interesting times.
charmcitysking on Wed, 19th Aug 2015 5:22 am
“Venezuela has MORE actual oil reserves then KSA. In point of fact Venezuela is also suffering more then any oil rich Gulf States.”
———
How do their recoverable reserves compare to KSA’s?
Davy on Wed, 19th Aug 2015 7:25 am
I laugh so hard at Mak’s desperation to maintain his failed anti-American agenda. Every one of his Brics are a mess. This was not supposed to happen per the Makworld. Mak can’t stand the fact the US may be the last one to fall off the cliff. Mak’s thesis was the end of the US and an ascension of Asia and Russia to a super-regional superpower. This new Phoenix region was supposed to pick up the pieces of a collapsed North America.
HA Ha ha….ah, OK settle Davy……Folks this is enjoyment of the kind you can’t buy. To see a resentful failure of an old man fail yet again is wonderful. I know I am sick but we all have our mental illness.
ennui2 on Wed, 19th Aug 2015 10:27 am
^^^ This.
BobInget on Wed, 19th Aug 2015 12:55 pm
At some point the West needs to decide if a war with Islamic pretenders like Boko Haram is worth removing ‘our oil under their ground’.
Just a glimpse of TODAY’S atrocities.
In Nigeria:
About 60 people drowned in a river while fleeing a Boko Haram attack on a remote village in northern Nigeria, local media reports said Tuesday. Locals reportedly said that several other residents were shot dead by the militants.
The attack took place in Kukuwa village in Yobe state last Thursday, but details emerged nearly five days later as militants destroyed telecommunication systems around the village, about 30 miles from the state capital Damaturu, according to reports. Boko Haram militants reportedly arrived in the village on motorcycles and cars, and opened fire.
“They opened fire instantly, which forced residents to flee. They shot a number of people. Unfortunately many residents who tried to flee plunged into the river which is full from the rain. Many drowned,” Modu Balumi, a resident of the village told Agence France-Presse. “By our latest toll we have 150 people either (shot dead) or drowned in the attack. The gunmen deliberately killed a fisherman who tried to save drowning residents of the village.”
Boko Haram, which aims to establish an ISIS-style government in northern Nigeria, has killed thousands of people since launching a brutal insurgency in the country six years ago.
“We were getting ready to observe evening prayers, all of a sudden we started hearing sounds of gunshots,” one man told BBC. “We all ran for our dear life into the bush. The following morning we returned home and discovered corpses of 60 children. They all drowned in the river in their effort to escape the attack.”
Nigeria’s President Muhammadu Buhari has given the country’s military three months to end the Islamist group’s violence.
In Iraq:
http://www.presstv.ir/Detail/2015/08/01/422821/UN-death-toll-Iraq-ISIL-July
http://www.gazettenet.com/home/18169890-95/lawrence-tucker-why-must-iraq-continue-to-endure-such-violence
Yemen:
http://abcnews.go.com/International/wireStory/ap-interview-red-cross-chief-decries-yemen-violence-33173465
“Yemen, in five months look like Syria after five years” Red Cross.
There are dozens of such examples but you all are sick of wars and can’t stand reading more.
BobInget on Wed, 19th Aug 2015 1:10 pm
“North Korea, no oil, ignored”.
What’s wrong with this statement?
It’s not about nuclear weapons anymore.
Warfare changed. Get used to it.
What use are nukes fighting movements like ISIS? Boko Haram? al Qaeda? Hezbollah?
How about?
Cyber Attacks? Climate Changes? Migrant refugee crisis? Food Shortages?