The
most powerful nations in Opec are willing to push prices as low as $40 a
barrel in their bid to take on Russia and US shale, according to a
high-profile Gulf oil minister.
Suhail al-Mazrouei, energy
minister of the United Arab Emirates, said that the organisation will
let prices fall by more than $20 per barrel before they consider an
emergency meeting to cut production.
“We are not going to change our minds because the prices went to $60, or to $40,” he said.
Brent
crude, the global benchmark, closed last week at $62 a barrel, the
Daily Telegraph reports, a new five-and-a-half-year low.
Tumbling
prices have already had a profound impact around the globe, including in
Britain where three times as many UK oil and gas firms have declared
insolvency this year compared with 2013.
A report due out today
from Moore Stephens, a UK accountancy firm, said that 18 UK oil and gas
businesses became insolvent this year compared with just six in 2013,
The Guardian reports.
Jeremy Willmont at Moore Stephens said: “The
fall in the oil price has translated into insolvencies in the oil and
gas services sector remarkably quickly. The oil and gas services sector
has enjoyed very strong trading conditions for the last 15 years, so
perhaps they have not been quite so well prepared for a sustained
deterioration in trading conditions as other sectors would have been.”
According to Willmont, expectations that prices will remain low for some time are fuelling the insolvencies: “There was a
sharp drop in the oil price during the
financial crisis, but the sense that oil prices could be depressed for some time is much more widespread this time around.”
The
Paris-based International Energy Agency recently slashed its forecasts
for growth in demand for oil in 2015 by 230,000 barrels to 93.3m barrels
per day. The estimations of the US Energy Information Administration
are even more pessimistic; last week the department reduced its forecast
demand growth for 2015 to 92.8m barrels per day.
Oil price: Opec is dead and oil could hit $50, says Bank of America
Oil prices could hit $50 per barrel in 2015 and Opec is effectively irrelevant, the Bank of America has suggested.
Francisco
Blanch, the bank’s commodity chief, warned that the consequences of
Opec’s decision not to stabilise prices at its last meeting will be
“profound and long-lasting,” and said that oil cartel is now
“effectively dissolved”.
Oil will now enter a period of wild price
swings and “disorderly trading” that will benefit cash-rich Middle East
petro-states such as Saudi Arabia, but will damage some of Opec’s less
wealthy members such as Nigeria and Venezuela, the Daily Telegraph
reports.
The Bank of America said in its end of year report that
as a consequence of falling prices, 15 per cent of US shale gas
producers are already losing money and up to half of all shale
operations will face financial difficulties if oil prices slip below $55
a barrel.
Years of oversupply in conjunction with developments in liquefied
natural gas
(LNG) have brought prices to their lowest point in five years. If the
global oil glut is not brought under control, prices will slide towards
$50, the bank said.
Citigroup disagreed with the Bank of America’s
assessment, suggesting that shale gas is more robust than their rival
suggests, and will be able to weather prices nearer to $40 per barrel.
According
to the end-of-year report, declining oil prices may lead to large-scale
shale projects in Argentina and Mexico being scrapped, and could force
some exploration in the remote areas of Russia and Canadian oil sands to
be scaled back. Several major oil companies are also expected to cancel
projects if the price of Brent crude price remains below $80.
In
spite of the continuing freefall of oil prices in the months ahead,
prices are expected to rebound in the middle of the year, said Sabine
Schels, an energy expert for the Bank of America. “We expect a pretty
sharp rebound to the high $80s or even $90 in the second half of next
year.”
9 December
The price of Brent crude rebounded
on Tuesday afternoon after hitting a new five-year low of $66 per
barrel, as some traders gambled that the prices had reached a floor.
After
oil prices continued yesterday’s downward trajectory in early trading,
some buyers eventually emerged, apparently anticipating that prices are
now bottoming in the wake of a 40 per cent slide since June.
The sharp drop in oil prices has been caused by rapid growth of
US shale output
and concerns that the global oil glut will continue well into 2015
following the decision of Opec not to cut production when the
organisation met in Vienna last month.
Prices tumbled by almost $3
a barrel on Monday following a forecast from Kuwait that the cost per
barrel would hover around the $65 mark until at least next summer.
Kuwait is a key ally of Saudi Arabia and “follows the strategy set by
the world’s largest crude producer, which has triggered a price war with
American shale oil companies”, The Times says.
In spite of today’s slight rally, many traders believe it is too soon to call a floor, Reuters reports.
“Although
talks of oil reaching its bottom are more rampant, we fail to see a
reversal coming without stronger fundamentals,” said Daniel Ang of
Phillip Futures.
Brent crude for January deliveries
fell as low as $65.29, its weakest since September 2009, but was up 46
cents at $66.65 a barrel by 1.30pm GMT. US crude was up 64 cents at
$63.69 a barrel, having plummeted to $62.25, its lowest since July 2009.
Oil price slips towards five-year low of $68 a barrel
8 December
The
oil price has fallen by more than a dollar as it sinks towards its
weakest point since October 2009 after Morgan Stanley forecast that
oversupply would peak in 2015.
The investment bank cut its forecasts following Opec’s decision not to reduce production to address the growing oil glut.
“Without
Opec intervention, markets risk becoming unbalanced, with peak
oversupply likely in the second quarter of 2015,” Morgan Stanley said in
a report dated 5 December.
In its report, the bank slashed its
average 2015 Brent base-case forecast by $28 to $70 per barrel and for
2016, by $14 to $88 from $122 a barrel.
In its worst-case scenario, the report suggested that oil could fall to $43 in the second quarter of next year.
Today,
Brent crude for January was down 90 cents at $68.17 a barrel, Reuters
reports, having gone as low as $67.73 in intra-day trading, just
slightly above last week’s bottom of $67.53 – the lowest oil has fallen
since October 2009.
Oil prices also dropped slightly following the
publication of China’s monthly trade data, which came in well below
expectations. In November, Chinese imports fell by 6.7 per cent and
exports grew just 4.7 per cent.
“We expect China’s trade data to
cause falling oil prices to fall further, as exports were lower than
expected,” Daniel Ang of Phillip Futures told CNBC. “Although lower
imports would imply less crude imports, we attribute falling crude oil
prices to be the primary reason for a reduced value of China’s imports.”
As
a consequence of falling prices, British oil company BP announced that
it would cut hundreds of back-office jobs around the world in downsizing
measures.
BP said that tumbling prices underlined the importance of “making the organisation more efficient”.
The
company has 84,000 employees worldwide, including 15,000 in the UK, the
BBC reports, but has been downsizing since the catastrophic Deepwater
Horizon oil spill in the Gulf of Mexico in 2010.
Read more at theweek.co.uk
