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Crude Economics
Brace Yourself: Here Comes $30 Oil

Are we about to see oil trading in the $30s? A number of analysts think so. WTI crude, America’s benchmark, is trading just above $40 per barrel today, and Brent is a scant $6 higher. With the global glut looking to persist into the fall when seasonal demand slackens, it’s not hard to imagine prices dropping further below their current six year lows. Bloomberg reports:

Oil could fall to lows last seen during the global financial crisis amid a persistent supply surplus, Citigroup Inc. said.

“Balances point to further oversupply throughout 2015 begging the question how low can oil go,” Citigroup analysts led by Seth Kleinman said in an e-mailed report Wednesday. The U.S. crude price of $32.40 a barrel reached in 2008 “is a conceivable reality.”

Even as prices plummet, output is growing from Canada’s oil sands while production from U.S. firms and OPEC alike is holding steady at remarkably high levels. With the prospect of resurgent Iranian crude flooding the market in the coming months, it’s no wonder prices continue to tick downwards.

That downward trend has companies ruthlessly cutting capital expenditures in an attempt to balance the books, and a federal auction of offshore blocks in the Gulf of Mexico yesterday attracted the lowest interest in nearly three decades. Even as the industry struggles to adapt, it seems clear we haven’t hit rock bottom yet. “To end this vicious downward spiral, crude prices need to head lower”, stated chief oil analyst at Energy Aspects Amrita Sen. It looks like that’s exactly where they’re headed.

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  • Fat_Man

    We have had sub $4/mmbtu natural gas for several years. One barrel of oil is 6 mmbtu. So the ng price implied $24/bbl oil for some time. I have argued that the two prices were inconsistent. Perhaps oil is converging with ng.

    • fastrackn1

      Two totally different markets that are not tied exactly together, for too many reasons to list.
      If oil goes to $24, it will have little or nothing to do with the price of ng.

      • Tate Metlen

        That may be arguably true in recent history, but prices were pretty closely tried in the past. The big difference of course being storage volume/pressures, however, if the prices had continued to diverge, that would have been a temporary obstacle. Natural gas has already largely replaced oil for electrical generation and had made serious inroads for heating. The transportation sector was next.

  • Jacksonian_Libertarian

    “That downward trend has companies ruthlessly cutting capital expenditures in an attempt to balance the books”

    I would point out that it isn’t the Government Monopoly owned Oil Monopolies that are responding to price pressures, but the privately owned companies that are cutting the fat, and it will be they that get leaner, meaner, and more efficient and competitive. And it will be the consumer and modern civilization which will be the prime beneficiaries of cheaper energy. I personally will continue to laugh as the Scumbags of OPEC see their incomes crash, it couldn’t happen to a more deserving bunch, and ain’t Karma a bitch.

    • fastrackn1

      “I personally will continue to laugh as the Scumbags of OPEC see their incomes crash, it couldn’t happen to a more deserving bunch, and ain’t Karma a bitch.”

      Yup, yup, and yup….

  • Seema Kaur Amrit

    low oil price bad for Saudi Arabia, bad for Russia, and bad for Texas, bad for environment …
    So it is a mix bag like pretty much everything else in life.

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