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OPEC: Oil demand next year will be lowest in a decade

December 10, 2014/in Economy, What's The Buzz /by Fuel Freedom Staff

OPEC cut its forecast for global demand Wednesday, expecting that demand in 2015 will be at the lowest level since 2004.

Reuters reports that the cartel, in its monthly report, said it expects worldwide demand for its oil to be 28.92 million barrels per day, about 1 million bpd less than the 12-nation group is producing now.

Last month OPEC’s decision to keep output the same — about 30 million bpd — sent prices falling even more precipitously. Brent crude is down about 40 percent overall since June, when it was about $110 a barrel.

If the cartel produces 28.92 bpd next year, that’ll be its lowest output since it produced 28.15 million bpd in 2004.

Saudi Arabia, the cartel’s largest producer, gave no sign it’s willing to cut production levels to try to prop up the price. As Bloomberg reports:

“Why should I cut production?” [Saudi oil minister] Ali Al-Naimi said in response to reporters’ questions today in Lima, where he’s attending United Nations climate talks. “This is a market and I’m selling in a market. Why should I cut?”

BP will cut jobs, take $1 billion in charges amid oil slump

December 10, 2014/in Economy, What's The Buzz /by Fuel Freedom Staff

The plunging price of oil has taken its toll on one of the world’s largest oil companies: Britain’s BP announced Wednesday it would cuts some of its 84,000-member worldwide workforce, as well as take $1 billion in charges over the next five quarters.

The New York Times reports that most of the financial hit will come in the form of severance pay, indicating that the number of job cuts could be significant. The company didn’t say how many positions it intended to shed.

The price of Brent crude has fallen some 40 percent since June. The price per barrel dropped another 1.5 percent Wednesday, to $65.32.

Bloomberg reports that BP’s move is the latest to come amid the price squeeze:

Europe’s third-biggest oil company by market value joins larger rivals Royal Dutch Shell Plc and Total SA in restricting budgets and offloading operations as margins are squeezed by the 40 percent drop in prices since June. BP said in October that about $1 billion to $2 billion may be cut from the $24 billion to $26 billion of planned capital expenditure in 2015.

Oil falls again, bank says floor could be as low as $43

December 8, 2014/in Economy, What's The Buzz /by Fuel Freedom Staff

The price of Brent crude dropped $1.77 a barrel on Monday, to $67.30. Earlier in the day it had hit $66.77, its lowest mark since October 2009.

BBC News has coverage here, and CNBC here.

Traders reacted to a report from Morgan Stanley citing fears of a global oversupply. According to BBC:

Morgan Stanley predicted that Brent would average $70 a barrel in 2015, down $28 from a previous forecast, and be $88 a barrel in 2016.

The investment bank also said that oil prices could fall as low as $43 a barrel next year. Analyst Adam Longson said that markets risked becoming “unbalanced” unless the OPEC producers’ cartel decided to intervene.

The Economist: Benefit of cheap gas depends on ‘sheiks vs. shale’ tussle

December 5, 2014/in Economy, What's The Buzz /by Fuel Freedom Staff

Cheap gasoline provides an overall economic benefit, The Economist writes in an article titled “Sheikhs vs. shale.”

The price drop of some $40 since June (from above $110 to about $70) has shifted “some $1.3 trillion from producers to consumers. The typical American motorist, who spent $3,000 in 2013 at the pumps, might be $800 a year better off—equivalent to a 2% pay rise.”

But will oil stay cheap? That’s the big question. How long the economic benefit of depressed prices lasts depends on:

” … a continuing tussle between OPEC and the shale-drillers [in the United States]. Several members of the cartel want it to cut its output, in the hope of pushing the price back up again. But Saudi Arabia, in particular, seems mindful of the experience of the 1970s, when a big leap in the price prompted huge investments in new fields, leading to a decade-long glut. Instead, the Saudis seem to be pushing a different tactic: let the price fall and put high-cost producers out of business. That should soon crimp supply, causing prices to rise.”

In short, gasoline is cheap now. We need to ensure it stays cheap.

Read more at FuelFreedom.org and PUMPtheMovie.com.

(Photo credit: Dan Weinbaum, posted to Flickr.com)

Low gas prices mean Americans want bigger vehicles

December 3, 2014/in Economy, What's The Buzz /by Fuel Freedom Staff

It was inevitable: The drop in gasoline prices means Americans are buying more gas-guzzling vehicles, according to an analysis by Bloomberg.

U.S. vehicle sales rose 4.3 percent in November, on track for 17.2 million sold for the year. That’s the quickest pace for a November since 2003.

Cobb: Narrative of American oil self-sufficiency ‘is about to take a big hit’

December 2, 2014/in Economy, What's The Buzz /by Fuel Freedom Staff

Kurt Cobb, who writes about energy and the environment, has a piece in The Christian Science Monitor about how OPEC is targeting the U.S. shale-oil “revolution.’

Cobb says it was folly for some proponents of U.S. drilling to think that oil would remain above $100 a barrel indefinitely. At $70, U.S. operations aren’t profitable enough to remain at that output level.

Cobb begins:

To paraphrase Mark Twain: Rumors of OPEC’s demise have been greatly exaggerated.

Breathless coverage of the rise in U.S. oil production in the last few years has led some to declare that OPEC’s power in the oil market is now becoming irrelevant as America supposedly moves toward energy independence. This coverage, however, has obscured the fact that almost all of that rise in production has come in the form of high-cost tight oil found in deep shale deposits.

The rather silly assumption was that oil prices would continue to hover above $100 per barrel indefinitely, making the exploitation of that tight oil profitable indefinitely. Anyone who understood the economics of this type of production and the dynamics of the oil market knew better. And now, the overhyped narrative of American oil self-sufficiency is about to take a big hit.

Hofmeister interviewed on NBC’s ‘Meet The Press’

December 1, 2014/in FFF in the News, Media, World staff /by Fuel Freedom Staff

John Hofmeister, a Fuel Freedom board advisor and the former president of Shell Oil Co., appeared on NBC’s “Meet the Press” on Nov. 23 to discuss the falling price of oil.

Watch a clip here:

Watch the entire “MTP” program here (Hofmeister comes on about the 35:20 mark), and read the transcript here.

Hofmeister, appearing along with author Daniel Yergin, was asked by host Chuck Todd whether lower-priced oil amounted to an extra sanction against Russia and Iran, which already are burdened by sanctions — Russia for its actions in Ukraine and Iran for its pursuit of a nuclear program.

Hofmeister replied:

It is. It’s an extra sanction because it reduces their economic clout. Well, we’ve seen what happened to the Russian ruble. Iran is not able to subsidize many of its programs.

CHUCK TODD:

They need to have oil to be at $100 or more a barrel for them to balance their budget.

JOHN HOFMEISTER:

Yeah, the estimates are Russia needs well over $100, Iran even more. And the consequence of that is the people of Russia, the people of Iran will suffer as a consequence of the low oil price. That’s why the panicked feeling within the OPEC meeting coming up on Thursday.

As we know, at that meeting, OPEC decided not to cut production quotas, effectively ensuring that oil prices would not stabilize in the near future.

As The Wall Street Journal reports, Saudi Arabia, OPEC’s largest producer, now believes that oil will settle at about $60, down from about $110 over the summer.

Hofmeister said that, despite the worldwide surplus of oil, the U.S. should keep pumping, in anticipation of demand coming back:

… the reality is, we will be short of oil in the world over the next several years as global growth exceeds oil production. So we need all the production we can have. We need all the infrastructure we can build to make sure the U.S. is taken care of.

Hofmeister, author of the book Why We Hate the Oil Companies, has much more to say about oil in the Fuel Freedom-produced documentary PUMP. The film is now available for pre-order on iTunes. Visit PumpTheMovie.com to watch a trailer and learn more.

Oil makes biggest one-day price jump in 2 years

December 1, 2014/in Economy, What's The Buzz /by Fuel Freedom Staff

Have we seen the bottom of the great oil-price plunge of 2014?

Experts say not yet. But oil prices rose sharply Monday, making their biggest jump in two years: Nymex crude-oil futures rose 4.78 percent, to $69.31 a barrel. And Brent crude, the international benchmark, rose 3 percent, to $72.54. It had been down as low as $67.53 earlier in the day, the lowest it’s been since July 2009.

Oil is down about one-third since June, and late last week the commodity plunged even more precipitously after OPEC announced it would not stem the price drop by ramping up production among its 12 member nations. But some analysts saw Monday’s jump as merely profit-taking after last week’s sell-off.

From The Wall Street Journal:

… many market watchers were skeptical that Monday’s gains signaled that oil prices had reached their bottom, pointing to global supplies that continue to overwhelm demand.

Many investors and analysts believe with OPEC on the sidelines it will take cutbacks by companies in the U.S. and Canada to bring supply and demand in line and pull the market out of its swoon. That day may not come until deep into 2015 or beyond, some analysts say.

From Reuters:

“The market clearly got a little overdone to the downside and now it’s coming back up, proof that there will be a response from the shale patch to these low prices,” said John Kilduff, partner at energy hedge fund Again Capital in New York. “Several shale companies are already reporting capital expenditure reductions next year as their profit margins get thinned out.”

On Wall Street, shares of shale energy companies such as Denbury Resources (DNR.N) and Newfield Exploration (NFX.N) took a beating for a second straight session, down about 5 percent each in late afternoon trade.

Data reviewed by Reuters on Monday showed the new low-price environment for oil might have started affecting U.S. shale production, with a 15 percent drop in permits issued for new shale wells in October.

OPEC stands pat … will $70 oil be the new normal?

November 28, 2014/in Economy, What's The Buzz /by Fuel Freedom Staff

The big news in the international oil markets last week was that OPEC decided not to cut production, which would have propped up free-falling prices, at least temporarily.

OPEC’s non-action sent oil prices falling further Friday, with the Brent benchmark slipping below $70 for the first time in four years.

NPR reports that some experts say oil in the range of $70 a barrel could last through 2015:

Igor Sechin, the head of Russia’s Rosneft, says he thinks oil prices will average $70-75 per barrel through 2015. That prediction was in line with what Bill Hubard, chief economist at Markets.com, told Reuters: “I think $70 a barrel will be the new norm. We could see oil go considerably lower.”

Some OPEC member nations, including Iran and Venezuela, which need a higher oil price to pay for their generous public services, had been pushing for the cartel to ease back on production to halt the plunge in prices. A moderate pullback would have come amid a global oil glut, thanks in part to reduced demand in Asia and Europe, as well as soaring production in the U.S.

Iran’s oil minister, Bijan Namdar Zanganeh, said OPEC’s decision was no guarantee that the United States would scale back production in North Dakota and Texas, a surge aided by advances in hydraulic fracturing.

“High prices are a disadvantage to OPEC’s market share,” Zanganeh said, according to Bloomberg. “If you want to increase your share, you have to reduce prices, but you can’t do it through ‘shock therapy’ over the course of three months if you want to change everything.”

Whatever OPEC does, U.S. oil companies will keep drilling

November 25, 2014/in Economy, What's The Buzz /by Fuel Freedom Staff

Bloomberg has a story about what U.S. drillers will do in response to whatever OPEC does this week at its regular meeting.

OPEC, led by its top producer, Saudi Arabia, will do one of two things: Nothing, which means the cartel’s output will remain unchanged, and crude prices will say flat (or keep sliding). Or it could cut production, which “would lift prices and profits across the board and help finance further U.S. energy innovation,” the Bloomberg story says.

Either way, U.S. producers will have the same response: Drill on.

“The industry is very resilient, as strong as ever in recent history,” Tony Sanchez III, chief executive of Texas producer Sanchez Energy Corp. (SN), said in an interview. “The technological advances we’ve made underpin virtually everything right now.”

A continued price plunge would put more pressure on U.S. companies, but they’re increasingly insulated by OPEC’s actions, the story says.

The swagger of U.S. producers in the face of plunging oil prices shows the confidence they’ve gained from upending OPEC’s six decades of market dominance with technology that wrings oil from dense rock for prices as low as $40 a barrel. The shale boom has placed the U.S. oil industry in its strongest position since OPEC began flexing its pricing power in the early 1970s.