Commodity Slide Continues Into 2015

Posted by Kelly Burke on Jan 8, 2015 11:32:11 AM

Barrel of oil with dollars falling around it

2015 is off to a wild start, with Crude dancing around and then dropping below $50/bbl. Wednesday (the 7th) Crude closed out at $48.65, yet another 5 year record. Gasoline and distillates have closed down every day this week, so it looks like the 2014 slide has no intention of stopping.

The inventories published this week showed:

  • Crude: 3.1 mmbbls draw
  • Distillate: 11.2 mmbbls build
  • Gasoline: 8.2 mmbbls build

Weakened demand pushed up distillate and gasoline inventories, as did a drop in import levels so we saw a build despite a concurrent drop in production. 

Interestingly, Bloomberg is reporting today that the U.S. exported a record amount of Crude oil in November of 2014 - the highest amount exported in fact, since record keeping began in the 1920s. This puts the U.S. into the 17th largest exporter spot. (You can read the full Bloomberg story here: "U.S. Oil Exports Jump to Record as Shale Production Booms )

Continuing builds and a ramp up in exports may be the future for domestic production, and long term this could in theory keep prices stable at a lower level. However, a lot depends on how the economy rebounds (or doesnt) both here and globally. Without a ramp up in demand, continued excessive production will continue to drive prices down but without tangible economic returns. 

Last week the stock market got crushed on dropping oil prices, but it closed up sharply Wednesday, and today all 3 major indexes are in strongly positive territory. 

At writing, FEB ULSD is trending up .0154, and RBOB is essentially flat, up .0005, with Crude trending up .22

Outer months August and beyond are all trading in the red for all products at the moment, though. 

We should see this week if the ups and downs get tighter than they have been (ie swinging a penny versus 6) if we start to settle into a new benchmark low, or if the slide keeps going strong. 

 

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Topics: Commodities, US Crude Exports, EIA Inventories, stock market, shale

Goldman Sachs Cuts Price Forecast for Oil: Projects $75/bbl Benchmark

Posted by Kelly Burke on Oct 27, 2014 4:38:05 PM

Line charts depicting the stock market scattered on a table

Goldman Sachs has revised its projected oil prices for 2015 to $75/bbl for WTI and $85/bbl for Brent Crude, in response to ramped up supplies and slow projected global economic growth. 

Production from the US, Brazil, and the Gulf is projected to increase almost 1 million bpd, combined, and OPEC production is assumed to remain more or less stable - with gains in Iraqi production and drops in Libyan output essentially cancelling one another out. 

Like wev'e talked about, OPEC may curb production to offset the decline at some point, and analysts seem to think 75 may be the price point at which US shale production slows and spurs OPEC to drop production. Its unlikely they will make major moves until US production shows signs of slowing against low margins, or thats the prevailing theory, anyway. 

Oil was down today on that and other ho-hum economic news, and stocks fell in tandem. Europe settled 2.2 billion in bond purchases today in a preventative move against deflation, and the re-election of Brazilian President Rouseff reversed the hope some had that the country would move in a more positive, business-friendly direction. 

On the NYMEX, ULSD closed off -.0066 and gas settled out at 2.11702, down -.0115 for the day. 

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Topics: Goldman Sachs, Brent Crude, OPEC, WTI Crude, stock market, shale

OPEC Tensions and "Break Even" Testing Pause NYMEX Dropoff

Posted by Kelly Burke on Oct 17, 2014 9:08:15 AM

Abstract image of an oil rig, dollars and a calculator

Thursday we saw ULSD settle out to erase most of Wednesdays drop - Wednesday it closed down -.0136 to 2.4586, and Thursday settled out at 2.4703 (+.0117). Gas not only erased Wednesday's 3 cent drop, but rebounded up +.0622 for the day to 2.2109. This morning, ULSD is trending up about a penny/penny and a half, while gas is hanging in the +.005 range, both having backed off earlier jumps.

So what's going on?

EIA stock reports came out Thursday (thanks to Columbus Day) and showed a build in Crude (+8.9 million barrels), a drop in gasoline (-4 million barrels) and distillates were down as well (-1.5 million barrels). CRUDE actually hit a 52 week low for a brief moment Thursday morning prior to the reports' release but ended up settling out at 82.70

With a decent stock report though, why is everything up when we've been on such a streak? Most likely culprit is the increasing tension slash standoff within OPEC. Historically, when prices dropped below a certain benchmark and started impacting the revenue of OPEC nations they could slow production output somewhat to stabilize. 

But now with thee US becoming a major player in global supply, thing have gotten a little awkward. Its possible that normal rampdowns in output will no longer have the huge impacts on price they once did, given that these nations are now not essentially the only players making an impact. 

However, a lot of analysts speculate that the reason OPEC is taking the giant hits to their nations' revenue without stalling production is an attempt to "find the bottom" and let supply run up to test what level American production can maintain in the face of dropping prices, especially given that the projected minimum level would be around $80 in order to still be profitable production from Shale.

Additionally, in comparison to OPEC operations, a lot of American projects are just that - projects - and in the face of falling revenue, its possible some of the higher cost, longer payout projects will stall out. However, given the remarkable jumps in efficiency from fracking to refinining we've seen domestically, it will be interesting to see where that level might actually be.

Given the weakness of the global economy, raising prices may be a tricky game with less return than anticpated as well, given the concurrent drop in demand. Saudi Arabia, who produces about a third of the OPEC output also looks motivated to maintain market share by any means necessary even at a short term loss in revenue. Specifically it appears motivated to maintain market share in the Asian teritorries - which will probably become even more relevant to them over the coming years, especially if the Alberta to St John pipeline project is approved which would open Canada up to export and become yet another global competitor on supply. 

 

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Topics: CRUDE, OPEC, EIA Inventories, shale

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