OPEC Inaction Spurs Survival of Fittest as Oil Below $65
West Texas Intermediate tumbled below $65 a barrel to the lowest level since July 2009 amid speculation prices have further to drop before OPEC’s decision to maintain output slows U.S. shale supply.
Benchmark futures in New York and London slumped as much as 3.7 percent, before recouping much of those losses. Both grades had their biggest monthly loss in November in almost six years after the Organization of Petroleum Exporting Countries signaled it will leave it to the market to reduce a global glut. Current prices are no guarantee of a significant decline in U.S. shale output, Iran’s Oil Minister Bijan Namdar Zanganeh said in an interview on Nov. 28.
Oil has collapsed into a bear market as the U.S. pumps crude at the fastest rate in three decades while global demand growth slows. OPEC last week resisted calls from members including Venezuela and Iran to reduce its production target of 30 million barrels a day at a meeting in Vienna. Iraq boosted November exports to 2.51 million barrels a day, an oil ministry spokesman said today.
“The market is in panicking mode,” Hans van Cleef, energy economist at ABN Amro Bank NV in Amsterdam, said by phone. “Prices in 2015 will be significantly lower than in 2014.”
Photographer: Daniel Acker/Bloomberg
A customer prepares to fuel her vehicle at a Road Ranger gas station in Princeton, Illinois.
WTI for January delivery fell as much as $2.43 to $63.72 a barrel in electronic trading on the New York Mercantile Exchange and was at $65.79 at 1:05 p.m. London time. The volume of all futures traded was more than two times the 100-day average for the time of day. Prices, which decreased 18 percent in November, are down 33 percent this year.
Cut Considered
Brent for January settlement dropped as much as $2.62 to $67.53 a barrel on the ICE Futures Europe exchange, the lowest since October 2009, before paring the loss to $69.43. Prices declined 18 percent last month and are 37 percent lower in 2014.
“The market is over-reacting right now, we expect it will bottom out and see an upward correction,” van Cleef said. “Lower oil prices are a stimulant for economic growth, which means extra demand.”
Many of OPEC’s 12 members intended to trim 1.5 million barrels, or 5 percent, from their collective quota, with non-member producers contributing an additional 500,000 barrels in reductions, according to Zanganeh’s account of the group’s Nov. 27 meeting in the Austrian capital. Saudi Arabian Oil Minister Ali Al-Naimi cited the threat from U.S. shale as the main justification for maintaining the output limit, Zanganeh said.
Photographer: Behrouz Mehri/AFP/Getty Images
Most of OPEC’s 12 members intended to cut 1.5 million barrels, or 5 percent, from their... Read More
“It’s clear that a production war is on and it will be survival of the fittest,” Phil Flynn, a senior market analyst at the Price Futures Group in Chicago, said by e-mail. WTI “will see a test of $60 soon,” he said.
Shale Boom
The U.S. oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which has unlocked supplies from shale formations including the Bakken in North Dakota and the Eagle Ford in Texas. The technique is typically more expensive than pumping from conventional reservoirs.
Only about 4 percent of U.S. shale output needs $80 a barrel or more to be profitable, according to the International Energy Agency. Most production in the Bakken formation, one of the main drivers of shale oil output, remains commercially viable at or below $42, the Paris-based International Energy Agency estimates. It expects U.S. supply to rise by almost 1 million barrels a day next year, with increasing flows to international markets.
Budget Deficit
OPEC, which supplies about 40 percent of the world’s oil, exceeded its official target for a sixth straight month in November, even after reducing output. The group pumped 30.56 million barrels a day, 424,000 barrels a day less than in October, a Bloomberg News survey of oil companies, producers and analysts showed. Iraq increased monthly exports by 2 percent in November, according to a ministry spokesman, Asim Jihad, and the Iraqi Oil Marketing Co., known as Somo.
Crude prices have dropped below the level needed by ten OPEC member states to balance their budgets, according to data compiled by Bloomberg.
Iraq, OPEC’s second-biggest producer, formed a panel to look into ways to cut next year’s proposed budget deficit to a “realistic level,” according to a cabinet statement released over the weekend. The current spending draft is based on oil prices at $70 a barrel, Obaid Mahal, a government official, said by phone yesterday.
‘Opportunistic Buying’
Russia will cope with the price fall and doesn’t see “anything so extraordinary in what is happening,” President Vladimir Putin said on Nov. 28. The world’s second-largest oil exporter, which relies on crude for almost half its income, is revising down estimates after basing next year’s budget on oil at $100 a barrel, Economy Minister Alexei Ulyukayev told reporters in Moscow the same day.
“We’ve seen the emergence of some opportunistic buying by the Chinese,” Daniel Hynes, a senior commodity strategist at Australia and New Zealand Banking Group in Sydney, said by phone. “If that’s ongoing, that could be supportive.”
China’s efforts to boost emergency stockpiles may increase imports by as much as 700,000 barrels a day in 2015, according to Energy Aspects Ltd., a London-based consultant. That’s more than half the global glut forecast by Citigroup Inc.
U.S. production expanded to 9.08 million barrels a day through Nov. 21, the most in weekly records that started in January 1983, data from the Energy Information Administration show. Crude inventories climbed to 383 million, according to the Energy Department’s statistical arm.
To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net Bruce Stanley, James Herron
West Texas Intermediate tumbled below $65 a barrel to the lowest level since July 2009 amid speculation prices have further to drop before OPEC’s decision to maintain output slows U.S. shale supply.
Benchmark futures in New York and London slumped as much as 3.7 percent, before recouping much of those losses. Both grades had their biggest monthly loss in November in almost six years after the Organization of Petroleum Exporting Countries signaled it will leave it to the market to reduce a global glut. Current prices are no guarantee of a significant decline in U.S. shale output, Iran’s Oil Minister Bijan Namdar Zanganeh said in an interview on Nov. 28.
Oil has collapsed into a bear market as the U.S. pumps crude at the fastest rate in three decades while global demand growth slows. OPEC last week resisted calls from members including Venezuela and Iran to reduce its production target of 30 million barrels a day at a meeting in Vienna. Iraq boosted November exports to 2.51 million barrels a day, an oil ministry spokesman said today.
“The market is in panicking mode,” Hans van Cleef, energy economist at ABN Amro Bank NV in Amsterdam, said by phone. “Prices in 2015 will be significantly lower than in 2014.”
Photographer: Daniel Acker/Bloomberg
A customer prepares to fuel her vehicle at a Road Ranger gas station in Princeton, Illinois.
WTI for January delivery fell as much as $2.43 to $63.72 a barrel in electronic trading on the New York Mercantile Exchange and was at $65.79 at 1:05 p.m. London time. The volume of all futures traded was more than two times the 100-day average for the time of day. Prices, which decreased 18 percent in November, are down 33 percent this year.
Cut Considered
Brent for January settlement dropped as much as $2.62 to $67.53 a barrel on the ICE Futures Europe exchange, the lowest since October 2009, before paring the loss to $69.43. Prices declined 18 percent last month and are 37 percent lower in 2014.
“The market is over-reacting right now, we expect it will bottom out and see an upward correction,” van Cleef said. “Lower oil prices are a stimulant for economic growth, which means extra demand.”
Many of OPEC’s 12 members intended to trim 1.5 million barrels, or 5 percent, from their collective quota, with non-member producers contributing an additional 500,000 barrels in reductions, according to Zanganeh’s account of the group’s Nov. 27 meeting in the Austrian capital. Saudi Arabian Oil Minister Ali Al-Naimi cited the threat from U.S. shale as the main justification for maintaining the output limit, Zanganeh said.
Photographer: Behrouz Mehri/AFP/Getty Images
Most of OPEC’s 12 members intended to cut 1.5 million barrels, or 5 percent, from their... Read More
“It’s clear that a production war is on and it will be survival of the fittest,” Phil Flynn, a senior market analyst at the Price Futures Group in Chicago, said by e-mail. WTI “will see a test of $60 soon,” he said.
Shale Boom
The U.S. oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, which has unlocked supplies from shale formations including the Bakken in North Dakota and the Eagle Ford in Texas. The technique is typically more expensive than pumping from conventional reservoirs.
Only about 4 percent of U.S. shale output needs $80 a barrel or more to be profitable, according to the International Energy Agency. Most production in the Bakken formation, one of the main drivers of shale oil output, remains commercially viable at or below $42, the Paris-based International Energy Agency estimates. It expects U.S. supply to rise by almost 1 million barrels a day next year, with increasing flows to international markets.
Budget Deficit
OPEC, which supplies about 40 percent of the world’s oil, exceeded its official target for a sixth straight month in November, even after reducing output. The group pumped 30.56 million barrels a day, 424,000 barrels a day less than in October, a Bloomberg News survey of oil companies, producers and analysts showed. Iraq increased monthly exports by 2 percent in November, according to a ministry spokesman, Asim Jihad, and the Iraqi Oil Marketing Co., known as Somo.
Crude prices have dropped below the level needed by ten OPEC member states to balance their budgets, according to data compiled by Bloomberg.
Iraq, OPEC’s second-biggest producer, formed a panel to look into ways to cut next year’s proposed budget deficit to a “realistic level,” according to a cabinet statement released over the weekend. The current spending draft is based on oil prices at $70 a barrel, Obaid Mahal, a government official, said by phone yesterday.
‘Opportunistic Buying’
Russia will cope with the price fall and doesn’t see “anything so extraordinary in what is happening,” President Vladimir Putin said on Nov. 28. The world’s second-largest oil exporter, which relies on crude for almost half its income, is revising down estimates after basing next year’s budget on oil at $100 a barrel, Economy Minister Alexei Ulyukayev told reporters in Moscow the same day.
“We’ve seen the emergence of some opportunistic buying by the Chinese,” Daniel Hynes, a senior commodity strategist at Australia and New Zealand Banking Group in Sydney, said by phone. “If that’s ongoing, that could be supportive.”
China’s efforts to boost emergency stockpiles may increase imports by as much as 700,000 barrels a day in 2015, according to Energy Aspects Ltd., a London-based consultant. That’s more than half the global glut forecast by Citigroup Inc.
U.S. production expanded to 9.08 million barrels a day through Nov. 21, the most in weekly records that started in January 1983, data from the Energy Information Administration show. Crude inventories climbed to 383 million, according to the Energy Department’s statistical arm.
To contact the reporters on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net; Grant Smith in London at gsmith52@bloomberg.net
To contact the editors responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net Bruce Stanley, James Herron
