Monday, January 12, 2015

How Low Can Oil Price Go !!!

The UAE oil minister said oil market oversupply may last months or even years from Jan 2015, but prices could recover if non-Opec producers "act rationally". We are experiencing an obvious oversupply in the market that needs time to be absorbed.

He also said the UAE would not panic over low prices and the market would eventually stabilise itself. Low prices would not delay the country's plans to boost its output capacity to 3.5 million barrels per day (bpd) by 2017.

They have dealt with such fluctuation in the past and they will not panic this time (early Jan 2015). There is a world demand increase on crude oil and believe the market will stabilise itself eventually.

Opec's decision in November 2014 not to cut its output "was supported by all members including the UAE and are confident on the strategic nature of such a decision.

Opec said it was not part of the oversupply and shall not be blamed if other non-Opec countries oversupply the market.

In the present scenario (Jan 2015) of tumbling oil prices amid a supply glut, current (Jan 2015) low oil prices may well be a prelude to global oil shortage as early as 2016.

Currently (06 Jan 2015) there is just 2% more crude oil supply than demand and the price of gasoline is under US$2 per gallon in Texas. If oil supply falls too far, we could see gasoline prices doubling within 18 months.

To put this in perspective, the world currently (Jan 2015) consumes about 93.5 million barrels per day of liquid fuels, with another 17% coming from natural gas liquids ("NGLs") and biofuels.

Since 2005, only North America had been able to add meaningful crude oil supply. Outside of Canada and the United States (including the Gulf of Mexico), the rest of the world's crude oil production netted to a decline of a million barrels per day from December, 2010 to December, 2013. More than half of the OPEC nations were now (Jan 2015) in decline.

It is believed that the current (Jan 2015) low crude oil price could be an overkill and result in the next "Energy Crisis" by early 2016.

In late 2014 Saudi Arabia decided to maintain its crude oil output of about 9.5 million barrels per day despite global over supply of about 1.5 million barrels per day, and the severe financial pain to many other OPEC nations.

The dip will be short-lived in the long history of crude oil price cycles. Oil prices have always bounced back and this is not going to be an exception.

Critics said that oil prices would go lower during the first half of 2015 is based on declining demand in the first half of every year.

Assumed that crude oil prices would remain depressed during the first quarter 2015, then slowly ramp up and accelerate as next winter 2015 approaches. By December 2015, we will see a much tighter oil market and significantly higher prices.

In permitting low oil prices, the Saudis seek to bring the market back into equilibrium.

Estimated that upstream U.S. oil companies would all announce 20% to 50% cuts in capital spending for 2015. We will start seeing the impact on supply at the same time the annual increase in demand kicks in.

Low oil prices will hurt the unhedged upstream companies, but they will hurt the oilfield services sector the most.

If crude oil prices move below US$60 per barrel and stay there for even six months it could prove catastrophic to non-OPEC supply. At some point, OPEC action may become necessary

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Please note that all data given are merely blogger's opinion. It is strongly recommended that you do your own analysis and research before investing.