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Oil Falls Off the Chart, Crushes Hopes
Oil Falls Off the Chart, Crushes Hopes
Greatest oil glut in history exacts its pound of flesh.
The ugly data for oil – ugly for those who’ve been hoping for, and hyping, a quick rebound to Nirvana – keeps piling up. But for two months, the price of oil was immune to it, trading in a range of around $60 per barrel for the US benchmark West Texas Intermediate.
It stirred up false hopes that lured yield-desperate investors into plowing more money into the industry, which allowed companies to raise many billions in new debt and equity capital so that the permanently cash-flow-negative business model of fracking could soldier on.
But on June 24, reality did start to hit. From that day’s high of $61.50 a barrel, it has been one nasty ride. Currently, WTI trades for $52.67 a barrel, after a 7.5% plunge since Thursday (Friday had only limited trading) to settle at the lowest level since April 13, down 14.4% since June 24. This is what the swoon looks like in 5-hour increments:
OPEC, which is furiously fighting for market share, has no intention of cutting back production. While its limit has been 30 million barrels per day (bpd), reality has been making a mockery of it. In June, production rose 170,000 bpd to 31.28 million bpd, the fourth months in a row of increases, and the highest level since August 2012, according to Platts’ report released today.
While some OPEC members experienced declining production and lost market share in June, Saudi Arabia increased production to 10.35 million bpd and Iraq added a phenomenal 330,000 bpd to produce over 3 million bpd.
Output “seems to be on the way up, and at a time when the market could be looking at a lot more oil from Iran,” explained Margaret McQuaile at Platts.
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OPEC Chief Claims Oil Will Rebound Higher Than In 2008
OPEC Chief Claims Oil Will Rebound Higher Than In 2008
OPEC’s secretary-general says the 7-month-old plunge in oil prices finally may have bottomed out and may be ready to rise again. In fact, Abdullah al-Badri hypothesized that a decision by his cartel to cut production conceivably could lead to oil at $200 a barrel.
“Now the prices are around $45 to $55 [per barrel], and I think maybe they reached the bottom and will see some rebound very soon,” al-Badri said Monday in an interview with Reuters in London, and if OPEC cut production, that price certainly would rise, perhaps to unimaginable levels.
“Suppose we cut production, and then we’ll have spare capacity,” he said. “Producers, when they have excess capacity, they will not invest [in new sources of oil]. If they do not invest, there will be no more supply. If there is no more supply there will be a shortage in the market after 3-4 years, and the price will go up and we’ll see a repetition of 2008.”
Related: Did Saudi Arabia Just Flinch?
In a separate interview with The Telegraph, al-Badri recalled that in 2008, a similar lack of investment drove the price of a barrel of oil as high as $147, though it quickly crashed with the onset of the global financial crisis. But in the current climate, he said, the market could “rebound back higher that the $147 we saw in 2008” – perhaps even as high as $200 per barrel.
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