Oil prices won’t keep plunging because US drillers can’t meet demand, analysts say – Supply and demand in the oil market are finely balanced, and surging U.S. output might not be enough to offset supply disruptions in Venezuela and Iran – Crude Oil prices USA drillers
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Oil prices won’t keep plunging because US drillers can’t meet demand, analysts say
- Oil prices have been under pressure for much of the last two weeks, but the rout is unlikely to last long, analysts say.
- Supply and demand in the oil market are finely balanced, and surging U.S. output might not be enough to offset supply disruptions in Venezuela and Iran.
- Oil market fundamentals and OPEC policy could support oil at roughly $70 a barrel or higher, analysts say.
U.S. crude prices sank on Thursday after a brief rally in the previous session, but analysts say the recent slump in oil prices won’t last much longer.
In the five sessions through Tuesday, U.S. crude futures fell from more than $72 a barrel to just under $67 a barrel, shedding 7.6 percent. International benchmark Brent crude has tumbled as much as $6 a barrel from its recent 3½-year high of $80.50, but has rebounded to about $78 a barrel.
“I think it’s temporary. I think the fundamental picture is still really strong. The market’s getting a bit dislocated right now based on a risk-off sentiment,” Tamar Essner, director of energy and utilities at Nasdaq Corporate Solutions told CNBC’s “Squawk Box” on Thursday.
Essner said the market’s aversion to risk has been stoked by concerns about the Trump administration’s looming trade wars and questions about the integrity of the European Union, which have caused the U.S. dollar to strengthen. A stronger greenback makes commodities sold in U.S. dollars more expensive to holders of other currencies.
Oil prices were already heading lower on recent reports that OPEC, Russia and several other producer nations could soon begin winding down their 17-month-old deal to cap output. That agreement has drained a global glut of oil and helped balance the market, but it’s now under review due to falling Venezuelan output and renewed U.S. sanctions against Iran, OPEC’s third-biggest producer.
Venezuela’s output has fallen by about 500,000 barrels a day this year and could drop by the same amount by year’s end, Essner said. Meanwhile, U.S. drillers would struggle to boost output by more than 1.2 million barrels a day.
“So we need every last barrel of those supplies to take us to where we need to balance the market,” Essner said.
Underscoring Essner’s point, oil futures reversed some of their losses on Thursday after weekly data showed a big drop in U.S. crude inventories.
American drillers that specialize in freeing crude oil from shale rock formations are facing worker shortages and limited pipeline capacity in western Texas. At the same time, these drillers are focused on returning value to their shareholders, rather than plowing revenue into new production.
“Shale is not Superman,” Helima Croft, global head of commodities strategy at RBC Capital Markets, told CNBC earlier in the week.
Shale drillers face yet another hurdle to upping output, according to Essner. Many agreed to deliver oil to customers at prices far below today’s levels — a practice known as hedging — and set capital spending plans assuming prices would average about $60 this year.
“They’re sort of locked in, and when you look at the slope of the futures curve, it’s going downward. That makes it harder to hedge production at attractive prices for further-out years,” Essner said.
Oil prices are likely to settle around $70 per barrel, said Essner, who believes futures rose to that level largely on supply-and-demand fundamentals.
OPEC would likely intervene if oil prices threatened to drop below the $70 per barrel mark, according to Sadad Al-Husseini, founder and president of Husseini Energy Company, on Wednesday.
“Clearly $80 a barel was way too high and was going much higher, he told CNBC’s “Squawk on the Street” on Wednesday. “On the other hand they don’t want to lose the floor. Dropping below $70 would be clearly too low, so they’re trying to coordinate their strategies ahead of the OPEC meeting on June 22.”
Husseini said the physical market — where barrels are bought and sold to satisfy actual demand — are “pretty well balanced.” For that reason, there’s little urgency for OPEC to change its policy until it assesses how far Venezuelan output will drop and to what degree U.S. sanctions will take Iranian barrels off the market.
“There is spare capacity. OPEC can if necessary add production, and if that gets called for, I’m sure the ministers will do that. They just don’t want to get ahead of themselves because right now there isn’t an issue,” he said.
U.S. production may be about to top out, but the industry should work through the bottlenecks by next year, he said. Canada and Brazil are also set to increase output, he noted.
-IMF urges Saudi Arabia to resist temptation to spend, as oil prices rise – Saudi Arabia has been advised by the International Monetary Fund (IMF) not to increase spending, as oil prices reach $80 a barrel and are predicted to go higher – IMF Saudi Arabia crude oil prices
-Low oil price era is ‘dead’ as crisis-stricken Venezuela risks a supply shock, analyst says – The “lower for longer” oil price mantra is doomed, one oil analyst told CNBC Tuesday, amid heightened energy market fears of an imminent supply shock – Crude oil price crisis Venezuela supply shock
-Oil prices to peak in mid-2019: BofAML – Brent crude oil prices are expected to trend gradually higher, hitting an average of $80 per barrel (/bbl) by mid-2019 before gradually trending lower to an average of $71/bbl by end-2019 – Crude Oil prices peak 2019 BofAML
-What is the perfect price for oil? – When it’s too high, consumers start freaking out and using less. When it’s too low, oil companies cut back operations and lay off thousands of workers – Perfect price crude oil
-The Regulations That Could Push Oil Up To $90 – International regulations on the fuels used in shipping could tighten the oil market and push prices up to $90 per barrel in the next two years – Regulations Push Crude Oil $90
-Morgan Stanley Sees Oil Climbing To $90 By 2020 – Forget Iran and OPEC. There’s another issue that will keep oil prices supported for the next two years, according to Morgan Stanley’s oil outlook – Morgan Stanley Crude Oil $90 2020
-Get ready for $100 a barrel oil and the conflict it represents – The geopolitical risk premium in oil has driven crude prices to nearly four-year highs and shows no signs of abating – $100 barrel crude oil
-Oil for $300. Is It Possible? – If major oil companies keep postponing the necessary investments, the next “huge supply shock” may bring the oil price up to $300 per barrel – Crude Oil $300 per barrel possible
-Oil eases as clock ticks down to Trump decision on Iran – Oil eased on Tuesday ahead of an announcement by U.S. President Donald Trump later in the day on whether the United States will reimpose sanctions on Iran, but the price held within sight of its highest in more than three years – Crude Oil Trump Iran
-BP says still sees oil at $50-$60/bbl in 2018 as shale output surges – BP expects benchmark oil prices to weaken in the second half of the year as U.S. shale production surges by up to 1.5 million barrels per day – BP crude oil $50 $60 barrel 2018 shale output
-Who’s to blame for costly oil? Saudis, Russia and Trump himself – Rising oil prices are now the latest target in President Donald Trump’s cross-hairs. The nation’s tweeter-in-chief complained Friday about OPEC fueling – Blame costly oil Saudis Russia Trump
-Oil pulls back from gains; OPEC says glut nearly gone – Oil prices on Thursday hit highs not seen since 2014, built on the ongoing drawdowns in global supply and as Saudi Arabia looks to push prices higher, though U.S. crude gave back gains in the afternoon to finish lower – Crude Oil OPEC glut Saudi Arabia
-Escalating Middle East Tension Could Trigger Oil Prices To Hit $100 Per Barrel – Oil prices could soon soar to $100 per barrel amid growing fear about conflict in the Middle East, according to an oil analyst for CNBC – Oil Prices $100 Barrel
– IEA: OPEC Mission Near Completion as Oil Glut Vanishes – OPEC is on the verge of “mission accomplished” in its quest to clear the global oil glut that caused the worst industry downturn in a generation – IEA OPEC Crude Oil Glut
-Is Russia Cheating On The OPEC Deal? – After three months of steady output, Russia’s crude oil production increased in March to 10.97 million bpd, the highest level since April 2017, as the top two Russian companies boosted their production – Russia Cheating OPEC Deal
-Oil price crosses $70 amid Iran deal tensions – Oil prices rose as investors saw increasing possibility that the US could withdraw from the historic Iran nuclear deal – Crude Oil price dollars 70 Iran tensions
-Is $70 oil the new normal? – The global economy is poised to cope well even if oil prices will remain at around $70 per barrel throughout 2018, energy experts said – Dollars 70 barrel crude oil shale oil
-Will oil prices remain strong for the rest of the year? – The oil inventory trajectory anchors oil prices in the short term, and the cost of bringing on the marginal barrel of US tight oil supply serves as the medium-term anchor for prices – The oil inventory trajectory anchors oil prices in the short term, and the cost of bringing on the marginal barrel of US tight oil supply serves as the medium-term anchor for prices – Crude Oil prices
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