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Apr-27-2009Oil Prices Slump Below $49 a Barrel(topic overview)
CONTENTS:
- Very low oil prices will weaken the purchasing power and demand of the oil exporting countries for the products and services of the industrialized states. (More...)
- U.S. crude oil futures for June delivery were down $2.27 at $49.28 a barrel by 3:51 p.m. British time, erasing some of Friday's gains of $1.93 that brought the contract to settle at $51.55. (More...)
- "Crude and products futures slipped overnight to below $50 as the dollar gained strength against the euro and world markets dropped off amid the concern of the possible swine flu pandemic," Addison Armstrong, analyst at Tradition Energy in Stamford, Connecticut, said in a note. (More...)
- No one had anticipated a precipitous plunge in oil prices in the fourth quarter of last year. (More...)
- Bottom line here is that even with OPEC cutting supply, demand is dropping even faster, as the global economy is in stall mode. (More...)
- The flu outbreak in Mexico has killed more than 100 people and already spread to the United States and Europe, prompting fears of a pandemic that boosted the U.S. dollar. (More...)
- U.S. crude-oil stockpiles rose 3.86 million barrels to 370.6 million in the week ended April 17, the highest since September 1990, an Energy Department report showed last week. (More...)
- Futures decline below $50 a barrel as concerns about a possible pandemic weigh on the market. (More...)
- Although at first glance it would seem demand for oil is generally stable, prices are notoriously hard to predict. (More...)
- "For high-cost projects, you probably do need a higher price level to be economically viable," said Ben Westmore, an energy analyst with National Australia Bank in Melbourne. (More...)
- Brent North Sea crude for delivery in June plunged 2.31 dollars to 49.36 dollars a barrel in London trade. (More...)
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Very low oil prices will weaken the purchasing power and demand of the oil exporting countries for the products and services of the industrialized states. That too, will provide for intensified levels of economic recession worldwide. How can OPEC member states be expected to invest their limited financial resources in huge oil projects and guarantee supply of energy to the industrialized states in the post-crisis period, under circumstances when OPEC oil incomes are dwindling and global demand for crude and oil products is shrinking? A cartel-oriented approach would suggest that in these conditions, OPEC should refuse to invest its resources in the development of its oil production capacities and instead adopt the policy of self restraint and remain in expectation of the day when crisis is over and it could sell its oil at higher prices. OPEC member states have proved that, in their oil policy making, they have refrained from just thinking of their own interests. International cooperation is required if the world expects OPEC to develop its production capacities in order to be able to meet future world demand for oil. [1] Neither should it have to withstand negative propaganda and psychological pressures. Ever since the 1970s, the leaders of the industrialized states have become used to attributing many of their economic problems and shortcomings to OPEC's performance, an approach which continues to this date. Although some western managers and experts who are well aware of the problems associated with energy may, in private, view OPEC's measures positively, they join others in keeping on accusing OPEC and its member states. Nor is it advisable for OPEC to cut production and leave its market share to non-OPEC producers of oil. If a likely crisis in the future of energy is a global concern which requires global cooperation, both the main consumers of energy, who make huge benefits from taxes they levy on oil products, and producers of oil should cooperate insofar as production cuts and price control are concerned. Consumers' oil incomes well transcend those of the producers. Even under conditions when oil prices were rising on a daily basis in recent years, OPEC member states frequently gave assurances to consumers that, if necessary, they would increase production, thus psychologically controlling the market situation in favor of consumer countries.[1]
The global economic crisis has struck the energy and oil markets hard. Oil prices have declined, and the intensity of the crisis in the oil market is such that even the recent decisions taken by OPEC to cut crude production rates, and in particular the organization's 19 December 2008 consensus to cut production significantly from the beginning of January 2009, have failed to contain the slide.[1]
Kuwaiti Oil Minister Sheik Ahmed Al Abdullah Al Sabah said Sunday that a price of around $50 a barrel is "reasonable" for crude considering the global economic slowdown. He said OPEC should wait for the results of massive stimulus packages by governments around the world before deciding whether to cut production at the cartel's next meeting on May 28.[2]
"Against our initial expectations, OPEC production cutbacks have been very significant," said a report on the energy sector by Bank of America-Merrill Lynch, which estimated cuts of 5.3 million barrels day since July, "helping create a floor to global crude oil prices."[3] OPEC's production control mechanism, that is intended to prevent oil prices from further declines and to maintain investments in the energy sector, serves the interests of the entire global community. OPEC should not be left alone in this fundamental task.[1]
The turbulences in the global financial arena, dramatic fluctuations in crude oil prices and the politico-environmental concerns about conventional energy use have set the stage for significant developments in the global energy sector.[4]
NYMEX crude for June delivery fell 67 cents to $50.88 a barrel by 2237 GMT. The contract had risen $1.93, or 3.9 percent, to settle at $51.55 a barrel on Friday. Gulf oil producers said on Sunday they can tolerate moderate crude prices for longer to help revive global growth, but shared a concern with consumer nations that a prolonged period of low prices could sow the seeds of a future fuel price spike.[5] Crude oil for June delivery rose $1.93 to settle at $51.55 a barrel on the New York Mercantile Exchange. Futures are up 16 percent this year. The June contract declined 1.8 percent this week.[6]
NEW YORK, April 27 (UPI) -- Crude oil prices fell nearly $3 per barrel on the New York Mercantile Exchange Monday as commodities were undermined by an outbreak of the swine flu.[7] Oil prices fell below $49 a barrel Monday as worries about the severe global recession were compounded by fears of the swine flu suspected of killing over 100 people in Mexico.[2] LONDON (Reuters) - Oil prices fell more than 4 percent towards $49 a barrel on Monday, pressured by fears of a global flu pandemic that could prove another setback for the fragile world economy.[8] LONDON (Reuters) - Oil prices fell more than 4 percent to below $50 a barrel on Monday, pressured partly by expectations the world economy could suffer another blow if a flu outbreak in Mexico turns out to be the start of a pandemic.[9]
In London, Brent prices fell $2.64 to $49.03 a barrel on the ICE Futures exchange. Oil has traded near $50 a barrel this month, about a third of its record high in July, as the global economy remains weak and traders grapple with an uncertain outlook for recovery. "It's range-bound trading.[2] Oil prices have decreased about $1 to under $51 a barrel on concerns over a global flu pandemic and the fragile state of the global economy.[10] SIOUX FALLS, S.D. (AP) — Oil prices dipped to around $48 a barrel Monday as new reports of swine flu threatened to slow summer travel and sent jitters through global markets.[3]
LONDON (AFP) — Oil prices fell sharply below 50 dollars on Monday, in-line with stock markets, on fears that an escalating swine flu crisis could further dampen economic activity and therefore energy demand, dealers said.[11] NEW YORK (CNNMoney.com) -- The price of oil fell more than 5% Monday morning as concerns about the potential economic repercussions of a swine flu pandemic weighed on the stock market and lifted the U.S. dollar.[12]
Dollar stronger against the euro NEW YORK, April 27 (Reuters) - U.S. crude oil futures fell sharply on Monday, weighed by worries about a spreading flu outbreak in Mexico and its potential economic impact, especially on jet fuel usage.[13]
SINGAPORE (Dow Jones)--Benchmark U.S. crude oil futures fell below the psychologically important $50-a-barrel mark Monday in Asia on profit-taking as weaker regional share markets reflected underlying unease over the outlook for the global economy.[14] In the last week, NYMEX June crude oil futures were down by 1.75% to close at $51.55 per barrel, after touching a weekly low of $46.72 a barrel. At 1,741 billion cubic feet, natural gas stocks are 459Bcf higher than last year at this time and 322Bcf above the five-year average. Dow Jones Industrial Average (DJIA) was up by 0.59% to close at 8131.33, marking its sixth successive weekly gain.[15] In order to glean the future of oil prices, it is important to understand what has happened in recent years - namely, why oil prices went from less than $10 per barrel to $147 over the past decade without creating a major recession.[16] Abdalla el-Badri, Secretary General of the Organization of Petroleum Exporting Countries, warned that oil prices of $50 per barrel are "insufficient for continued investment" and urged that prices rise to $70 barrel. Algerian Energy Minister Chakib Khelil predicted on Sunday that prices would rise to $60 a barrel by the end of this year.[2] Crude oil prices need to be at $70 a barrel to ensure continued investment in the industry, Abdalla el-Badri, secretary-general of the Organization of Petroleum Exporting Countries, said in Algiers yesterday.[17]
CERA's report indicates that, at crude prices of under $50/B for WTI, new oil investments will be economically feasible only in the Middle Eastern member states of OPEC and in some oil fields in China. Under conditions when oil investment in other regions of the world is not economically feasible, industrialized states expect OPEC member countries to make huge investments in their upstream oil industries and cooperate with international oil companies.[1] Thirteen Asian countries along with OPEC are in the process of drafting a plan to curb the speculative trading by investors in crude oil. Gulf oil producers said on Sunday that they can tolerate moderate crude prices for longer to help revive global growth, but shared a concern with consumer nations that a prolonged period of low prices could sow the seeds of a future fuel price spike.[18] Though the 5 percent out put cut by OPEC countries would not make any significant increase in the global crude oil price, can potentially raise concern among the import dependent countries.[4]
Cancellation or any delay in energy investments will expose the security of supplies and the world economy in general to grave risks. Daniel Yergin, distinguished energy expert and Chairman of CERA, in his short article entitled 'What Would Low Oil Prices Mean to the World', published in the Financial Times in November 2008, expresses concern that the energy policies of the new U.S. administration, which are mainly based on maximum energy optimization and efficiency and development of new energies and cutting off dependence on imported oil, are doomed to failure at present oil prices. Amidst all these developments it appears necessary that OPEC should review its policies.[1] Excessive growth of oil prices worldwide can put the world economy into trouble, while very low or falling oil prices can disturb the industrialized states' energy security policies that would create future energy crises.[1]
Globally, unconventional energy sector witnessed an unprecedented growth due to the rising crude oil price. Many unconventional energy exploration projects are adversely affected by the falling crude oil price as the profitability these projects was heavily dependent on the oil price.[4]
Essar Oil Ltd shed by close to 14% at Rs.144.65. The weakness in the oil sector came as fallout of weakness in crude oil prices, which fell to USD 49.5 per barrel down by over USD 2 per barrel from its previous close. Sensex was trading at 11,318 levels marginally down from its previous close.[19] MUMBAI: Oil & gas stocks traded negative causing weakness in the markets during the afternoon trading session on the Bombay Stock Exchange (BSE) as crude prices plunges below USD 50 per barrel today.[19]
Higher oil prices will then trigger a contraction in global economic activity and a renewed price decline. It should be remembered that in the early 1980s, the recession ushered in a long period of declining oil prices, culminating in $10 per barrel by the end of the 1990s.[16] Oil price which reached above $147 per barrel declined to less than $65 per barrel in the fourth quarter of 2008.[4]
Heating oil prices fell sharply, falling 0.0713 cents to $1.297 per gallon.[7] Retail gasoline prices fell two-tenths of a cent overnight to a national average of $2.05 for a gallon of regular unleaded, according to auto club AAA, Wright Express and Oil Price Information Service. Gas is just over a penny higher than a month ago, but about $1.55 a gallon cheaper than it was last year at this time.[3]
If it were the case that the market and consumers saw the realization of all the potential bottlenecks that threatened the production of oil, while at the same time saw that OPEC's surplus production capacity had fallen to approximately zero, oil prices would have climbed well above the record highs of $147/B in July 2008. While these conditions did not occur, OPEC was the target of accusations.[1] OPEC's track record in similar periods of oil price weakness reveals that, as long as the crisis continues, the organization will attempt to prevent further price drops through maintaining control on production and specifying production ceilings for each member state.[1]
Reports from the G7 meeting which signaled that the worst of the global recession might be over also boosted investor sentiment. This helped in providing a boost to the equity markets which added to the strength in crude oil. Meanwhile on Saturday, the Iranian oil minister stated that he expected crude demand to pick up and stock levels to decline after the second quarter of this year. He also said that any decision by OPEC to reduce production again at its next meeting on 28th May would depend on market conditions and the global economic situation.[20] Weekly inventory data showed more than expected rise in crude oil and oil products stocks, raising concern over weakening energy demand in U.S. Fuel demand in past four weeks in U.S. was 18.5 million barrels, down by 6.5% from a year earlier.[15] The U.S. Department of Energy (DoE) last week said that American crude oil stockpiles had surged 3.9 million barrels in the week ending April 17 -- marking the sixth weekly gain in a row. Crude inventories in the United States are about 17 percent above their level at the same stage last year and remain at the highest level since September 1990.[11] According to the U.S. Department of Energy's website, the federal government is quietly topping off the strategic petroleum reserve, pumping in 17.2 million barrels since the beginning of 2009. This gesture is more symbolic than anything else, since the 727 million barrel capacity represents a mere 62 days of protection from having to import oil. The thing that's most interesting about this activity is that the reserve now holds the highest level of inventory in its history, 717.2 million barrels as of April 21.[21]
U.S. crude oil futures for June delivery were down $2.27 at $49.28 a barrel by 3:51 p.m. British time, erasing some of Friday's gains of $1.93 that brought the contract to settle at $51.55. [9] U.S. sweet crude for June delivery plunged $1.08 to $50.47 a barrel on Monday; London Brent oil shed 77 cents to $50.90.[10]
Copper fell more than 4 percent on flu fears. U.S. crude oil CLc1 is forecast to average nearly $51 a barrel in 2009 as analysts raised their consensus forecast for the first time since July 2008, a Reuters poll showed.[13] Crude oil fell $2.59 to $48.96 per barrel while health departments warned the swine flu, which broke out in Mexico, could become pandemic.[7] London Brent crude was down $1.86 at $49.81 a barrel. The swine flu fears hit equity markets in Asia and Europe, adding to investor nerves about the release this week U.S. bank "stress test" results, a Federal Reserve meeting and a flood of corporate earnings. "Nervousness about another batch of U.S. earnings reports and macro reports, couple with a potential pandemic out of Mexico, are both weighing on prices," said Edward Meir of broker MF Global in a research note.[8]
Futures declined as much as 6.9 percent, the most since April 20. Prices are up 12 percent so far this year. It would be bad for the economy if the swine flu were to impact the travel and tourism sectors, said Michael Fitzpatrick, a vice president for energy at MF Global Ltd. in New York.[17] The oil market is reacting along with the stock market and Treasuries to the outbreak of swine flu, said Tom Bentz, a senior energy analyst at BNP Paribas Commodity Futures Inc. in New York. It's funny that we've been swimming in oil for months and ignored the fact, but are reacting to this.[17]
NEW YORK -- Crude-oil futures dropped more than 6% Monday on concerns the deadly strain of flu showing up around the world will force travel cutbacks that undermine global oil demand.[22]
Many plans and projects have been suspended, and there has been a great degree of concern expressed at the majority of recent energy conferences worldwide about the future of global supplies of energy, should prices continue to fall. This concern is more evident in the consuming countries, which lack energy resources and are importers of oil and gas.[1] The deputy secretary-general of the Energy Charter expressed concern about the future energy crisis and sharp changes in the price of oil. He stated that a continued downtrend of oil prices would disturb current investments and may entail a halt in the already-planned investments, which would be crucial in the coming decade.[1] CERA's report centered on investment in the field of energy and raised the concern that, at current oil prices, there will be no incentive for sufficient investment.[1]
Forecasts reveal that, in the long run, huge investments need to be made in the energy and oil sector. The International Energy Agency (IEA), in its latest World Energy Outlook reports that was released in late 2008, estimates this figure at $26 trillion within the next 20 years, that is the 2009-30 period, of which at least 40% should be injected into the world's oil and gas sectors. At current prices and under circumstances where a huge crisis has struck financial markets and there is a shortage of credit, such huge amounts of investment are neither feasible nor practical.[1] In the global energy sector the impacts of credit crisis is expected to reverberate for the months ahead in the form of crude oil demand decline, price fluctuation and delays in major energy investments.[4] The global price of crude in fact serves as an index of energy prices, an index which is influential on investments in the field of energy. Such a concern is likely to affect all investments in the energy sector.[1]
The experience of the past several years, before the emergence of the recent economic crisis, suggests that future energy crises will be serious and unavoidable. The upward trend of global prices of crude in recent years, before the current crisis, was a result of such factors as supply and demand imbalances and in particular a shortage of supply capacity.[1] Oil prices have already plunged from record highs of 147 dollars a barrel reached last July, as a global recession dries up demand for crude around the globe.[11] Demand will remain weak everywhere, and the global economy will not be able to absorb renewed oil price increases. A similar situation occurred in 1979.[16] When the Iranian revolution pushed up oil prices, the global economy was already stagnating.[16]
Even in a severe recession, that's a sliver of good news for consumers. Oil has traded near $50 a barrel this month, about a third of its record high in July, as the global economy remains weak and traders grapple with an uncertain outlook for recovery.[3] "As long as there's optimism left about turning a corner or the bottom not falling out of the global economy, then we're going to trade around $50." "Barring any big news event, we're going to trade between $43 and $53," he said.[2]
"The oil market is stuck in a rut. and any sign of tightening is swiftly smothered by negative news from the global economy and dire numbers for oil demand," said a report from KBC Market Services in Britain.[2] The report said there was "little potential for energy price spikes in the next 12 months even if the global economy recovers."[3] "While we are confident that 2010 crude prices will be higher, the magnitude of the improvement is still very much up in the air," Adkins wrote in a client note. "If the global economy stabilizes or improves in 2010, these estimates will likely move much higher."[3]
Oil consumption has fallen as a result of the global financial meltdown, with crude prices now around $50 a barrel, from a record high of over $147 in July 2008.[10] Oil has hovered near $50 a barrel in recent sessions, and is down nearly $100 from last year's all-time high. The Organization of the Petroleum Exporting Countries called on non-member countries, such as Russia, to cut production to help prop-up prices.[12]
Merrill Lynch said it saw Nymex oil prices averaging $62 a barrel in 2010, with chances for a stronger rebound only in 2011.[2] Today, we can witness sideways move in crude oil prices with support for NYMEX June Crude Oil is seen at $49.80/$48.40 level & resistance at $51.75/$52.80 levels.[15] Crude oil prices after seeing a decent rally on Friday, which took the prices to an intraday high of $51.75, are seeing a correction in the early morning trade in Asia. The mixed sentiment seen in the equity market this morning in the Asian markets is putting pressure on the Industrial commodities like Crude oil and Base metals.[23] Crude oil prices are likely to find support at $49.80 on the breach of which the current up move from 46.72 to 51.76 will reverse the prices might fall back all the way to $46.80- 47.00.[23]
Crude Oil prices traded lower during last week, as selling ahead of NYMEX May contract expiry and bearish inventory data weighed on prices. Traders sold off their long positions in May oil futures, which pulled oil prices lower.[15] Crude oil prices may edge down as news of swine flu is adding negative sentiments amongst traders.[18] An outbreak of a new strain of swine flu in the U.S. and Mexico has yet to be cited as a reason for lower oil prices, although developments appeared to fuel some caution in equities, damping sentiment.[14]
Oil prices were also driven lower by a stronger dollar, since crude is priced in the U.S. currency.[12] The crude oil price fluctuation will continue to be visible as the demand for oil has declined in some of the OECD countries especially United States.[4] The latest prices falls meanwhile came after the Organization of Petroleum Exporting Countries (OPEC) said Sunday that current oil prices were inadequate to cover investment costs by oil producers.[11] OPEC has so far managed to regulate and contain oil price fluctuations, otherwise the host of factors affecting oil prices, to which reference had been made in CERA's report, would intensify oil and energy market problems way beyond what is being observed today.[1]
Cambridge Energy Research Associates warned low oil prices and a global credit crunch could reduce investment and create an oil shortage by the middle of the next decade. Merrill Lynch envisions this happening even sooner, by 2010 or 2011.[16] Although oil prices in the short term could go either direction, investment adviser group Raymond James believes prices will rebound somewhat by 2010, but left the door open to a strong comeback for energy prices.[3]
We believe, that rise in oil prices is not backed by fundamentals, as outlook for energy demand continues to remain bleak.[15] The small increase in summer driving demand aside, the stage is currently being set for oil prices to skyrocket, even as global demand continues to weaken.[21] Because the lack of global demand and strengthening U.S. dollar - that oil is priced in - are keeping prices depressed.[21] "The potential for a drop in jet fuel demand is also weighing on oil markets," Addison Armstrong, an analyst at Tradition Energy, said in a research note. "Nervousness about another batch of U.S. earnings reports and macro reports, coupled with a potential pandemic out of Mexico, are both weighing on prices," said Edward Meir of broker MF Global in a research note.[9]
The results would be clear ' as soon as the global economic crisis fades off and the world returns to a period of economic stability or blossoming, a shortage in energy and crude oil production capacities will grip the world.[1] Analysts also say the worsening global economic crisis is pushing oil and energy prices down.[10] MUMBAI: Global economic crisis continued to hit the crude oil as the prices plummeted in the early Asian trade on Monday.[24]
NEW DELHL: Crude oil futures fell by 1.40% in early trade on the Multi Commodity Exchange today as traders reduced their holdings in the line with a weakening global trend.[25] Crude oil speculators on the New York Mercantile Exchange shifted to a net short position in the week to April 21, according to data from the U.S. Commodity Futures Trading Commission released on Friday.[8] Hedge-fund managers and other large speculators are betting on falling New York oil futures for the first time in six weeks, according to U.S. Commodity Futures Trading Commission data.[17]
In London, Brent prices fell $2.89 to $48.69 a barrel on the ICE Futures exchange. Associated Press Writers Pablo Gorondi in Budapest, Hungary, Alex Kennedy in Singapore and Madlen Read in New York contributed to this report.[3] New York's main futures contract, light sweet crude for delivery in June, fell 90 cents to USD 50.65 a barrel.[24] New York's main futures contract, light sweet crude for June, dived 2.59 dollars to 48.96 dollars a barrel.[11]
On the New York Mercantile Exchange at 9:33 a.m. EDT (1333 GMT), June crude CLM9 was down $3.01, or 5.84 percent, at $48.54 a barrel, trading from $48.01 to $51.45.[13] Benchmark crude for June delivery was down $2.75 to $48.80 by mid-afternoon in Europe, in electronic trading on the New York Mercantile Exchange.[2] Light, sweet crude for June delivery was recently down $3.41, or 6.6%, at $48.14 a barrel on the New York Mercantile Exchange.[22] On the New York Mercantile Exchange, crude for June-month delivery fell 90 cents to $50.65 a barrel.[25]
Brent crude for June settlement fell $1.67, or 3.2 percent, to $50 a barrel on London's ICE Futures Europe exchange.[17] Brent crude oil for June settlement increased $1.56, or 3.1 percent, to end the session at $51.67 a barrel on London'''s ICE Futures Europe exchange.[6]
The U.S. currency traded 0.9 percent higher at $1.3126 per euro, limiting the appeal of dollar-priced commodities like crude oil as an alternative investment.[17] NYMEX Contracts U.S. Crude JUN9 $50.88 -0.67 +$1.93 +3.89% $49.86 Heat Oil MAY9 135.41 -1.42 +5.04 +3.82% 138.64 RBOB MAY9 143.50 -0.70 +4.76 +3.41% 144.23 Natgas MAY9 $3.229 -0.068 -$0.112 -3.29% $3.629 ICE Contracts Brent JUN9 $51.02 -0.65 +$1.56 +3.11% $51.33 Gasoil MAY9 -- +0.00 +$12.00 +2.85% $439.24 Note: U.S. heating oil and RBOB gasoline contracts listed in cents per gallon.[5] The May contract fell another 7.4 cents to $3.223 per 1,000 cubic feet. "This begs the question. if the fundamentals for oil are so bullish. then why is natural gas still tanking?" analyst and trader Stephen Schork asked.[3] Natural gas prices fell 0.048 cents to $3.249 per million British thermal units.[7]
Crude prices have defied traditional market fundamentals for weeks and risen in the face of an awful economy and growing supplies of oil. The same cannot be said for natural gas, which fell to fresh seven-year lows Monday.[3] Had it not been for interruptions in the supplies of Russian natural gas to Europe and the severe cold winter in that region, one could have expected even lower oil prices. This economic crisis will not last for ever.[1]
On the downside, we expect the prices to be strongly supported around the $45 levels and only consistent trading above $54 can lead to further upside in oil prices.[15] Oil prices are trading range bound for past five weeks, as traders are finding it difficult to set any direction for oil prices.[15]
Many oil traders view the stock market as a proxy for the overall economy and, as a result, oil prices often rise and fall in tandem with the major stock indexes.[12]
PERTH, April 27 (Reuters) - Oil retreated below $51 a barrel a Monday, erasing some of the previous session's gains that had been fuelled by firmer stock markets and a weaker U.S. dollar.[5] Two years ago, drilling stocks like Apache Corporation (NYSE: APA) and TransOcean, LTD (NYSE: RIG) were all the rage - and for good reason. When oil was at $147 a barrel, they couldn't make their day rates high enough to quench the seemingly insatiable drilling demand from oil companies.[21]
In mid-2008, with the global recession already underway, most analysts warned that oil was headed for $200 per barrel.[16] After bottoming close to $37 per barrel in mid-February, oil rose some 50pc and now trades at $52 per barrel.[16]
At 1100 hrs on the MCX, crude oil for the most-active May contract fell by 1.40 per cent to Rs 2,527 per barrel.[25] The oil for delivery in June moved down by 1.10 per cent to Rs 2,608 per barrel, clocking 238 lots. Marketmen said traders and speculators indulged in reducing their holdings in the face of a weakening trend in the overseas market.[25]
In other Nymex trading, gasoline for May delivery fell 7 cents to $1.3721 a gallon and heating oil slid 7.42 cents to $1.2941 a gallon.[3] NYMEX May heating oil HOK9, the benchmark for jet fuel trades in the cash market, fell 8.23 cents, or 6.01, percent, to $1.2860 a gallon, trading from $1.2785 to $1.3624.[13] NYMEX May RBOB RBK9 fell 7.87 cents, or 5.46 percent, to $1.3633 a gallon, trading from $1.3520, below technical support charted at $1.36, to $1.4420.[13]
In London, June Brent crude LCOM9 fell $2.86, or 5.54 percent, to $48.81 a barrel, trading from $48.40 to $51.15.[13] Light sweet crude for June delivery was down $2.78 to $48.77 a barrel in pre-market, electronic trading.[12]
"Crude and products futures slipped overnight to below $50 as the dollar gained strength against the euro and world markets dropped off amid the concern of the possible swine flu pandemic," Addison Armstrong, analyst at Tradition Energy in Stamford, Connecticut, said in a note. [13] The major concern raised at that conference was over the question of investment in the energy sector and the potential for disturbing future demand for oil.[1]
As regards investment in the oil and gas upstream sector, only upstream projects in the OPEC member states are economically feasible at current prices.[1] All producers of oil, including OPEC and non-OPEC, should negotiate and examine the situation with the member states of the IEA as major consumers of oil. In view of the strategic role the Islamic Republic of Iran plays within OPEC, as one of the founders of the organization and as OPEC's second largest producer of oil, it is evident that the managers and experts in charge of the industry should study and adopt proper policies and follow up on those policies within OPEC. This article implies that OPEC is, more than ever, in need of reviewing its policies and devising a long-term strategy. Perhaps this is now the best opportunity for OPEC to demand a reasonable and fair interaction between producers and consumers of oil (OPEC or non-OPEC). Through setting its oil diplomacy in motion and persuading the OPEC member states collectively, the Islamic Republic of Iran can organize a realistic wing that would follow up the real interests of the member states. Otherwise, perhaps the Islamic Republic of Iran would need to reconsider its membership of OPEC.[1]
The International Energy Agency (IEA), said that it can'''t rule out the possibility of an oil supply shortage in 2013-14 because of slower investments in oil exploration and production by OPEC and other oil producing countries.[18] The OPEC ministers feel some countries are actually hoarding oil. Why would countries hoard oil? One reason: they feel that prices are going to go much, much higher.[21] Even if oil supplies do not expand in the coming years, Opec and other oil producers will find it difficult to raise prices.[16] OPEC members have deferred investments in a total of 35 drilling projects. OPEC, supplier of about 40% of the world'''s crude faces a 51% drop in revenues this year because of drop in crude prices.[18] "The price of 50 dollars is not enough to cover investment costs for the future," OPEC secretary general Abdalla El-Badri told reporters in Algiers. "The price which allows reasonable and acceptable revenues is more than 70 dollars a barrel," he added.[11]
El-Badri would not say if OPEC, which pumps about 40 percent of the world's oil, would cut output further when it meets in Vienna on May 28. "There are positive signs of a recovery in the world economy, which we have to take into account before taking a decision on the future," he said.[11] The industrialized states are certainly aware of the fact that oil and energy are inseparable constituents of the world economy and any halt in oil projects would intensify economic recession worldwide. In such a case, many of the manufacturers and suppliers of oil equipment and services will lose their jobs.[1] Energy prices dropped and Treasuries gained after the disease spread beyond Mexico and the U.S. The economy in the U.S., the world's largest oil-consuming country, will continue to contract for some time, Lawrence Summers, director of the White House National Economic Council, said yesterday.[17]
April 27 -- Crude oil fell the most in a week on concern that the swine-flu outbreak will curtail air travel and on forecasts that the U.S. economy will keep shrinking.[17] Crude oil rallied to more than a 1-week high at $51.75 as U.S. economic data releases showed an improvement in orders of durable goods as well as a more than expected increase in sales of new homes.[20] Crude oil currently trades at $51.50 and now faces a good resistance at $52 level on Nymex. Some profit taking could be expected from this level. A convincing upside break of this resistance could take prices higher towards $55 level in the near term.[20] We see good resistance at 2675 levels and on the downside we might see crude oil futures testing Rs. 2415.[18] Crude oil technically does not look very strong as ADX is still below 25 and -DI is higher than+DI so upside is likely to get capped in crude oil futures.[18]
The dollar was stronger against the euro, also helping to pressure oil futures.[13]
Crude oil rose for a fourth day, the longest stretch in two months, as advancing equities and a weaker dollar outweighed concern about lower fuel demand, Bloomberg reported.[6] According to expert the prices are likely to go down further because of remaining worries over the economies would reduce the demand for the crude oil.[24] The International Energy Agency has just cut its forecast for oil demand, and China reported a 5.5pc drop in crude imports. This makes long-term prospects even brighter.[16]
Most of the demand growth will be seen in the developing countries especially in the growing economies in the Asia Pacific region. The oil and gas consumption in many of the producing countries such as Middle East are also expected to increase as a continuing trend set by the higher income through windfall oil revenue for the past many months. As demand for natural gas is growing in many countries their dependence over gas producing countries such as Russia is increasing alarmingly.[4] The highest growth in demand for natural gas in the importing countries is expected to come from electricity generation sector as natural gas is a much cleaner fuel than coal.[4]
Due to the increasing concerns about potential vulnerabilities of import dependency, many oil and natural gas importing countries are increasingly relying on the domestic resources.[4] Schork said the excursion between the oil and natural gas markets makes little sense. "In other words, crude oil is extremely overbought compared with natural gas," he said.[3] As of Friday, the July natural gas contract is down 41 percent since the start of the year while the crude contract the down only 2 1/2 percent.[3]
Natural gas for May delivery dropped 9.4 cents to $3.203 per 1,000 cubic feet. Associated Press writer Alex Kennedy in Singapore contributed to this report.[2] Natural Gas prices traded sharply lower in the last week, as larger than expected rise in natural gas inventory coupled with concern about falling demand weighed on gas prices.[15] Natural Gas prices are expected to remain under pressure amidst bearish fundamentals.[15]
Natural gas futures ended lower on Friday as mild weekend forecasts, growing supplies and a weak economy continued to weigh on sentiment.[18] Some traders, including Schork, believe natural gas markets do not attract the same amount of speculative trading, and thus are a better gauge of the economy and market fundamentals.[3]
Sectoral index, BSE Oil & Gas was trading down by 0.82% at 8023 points, as most other oil stocks traded in red during the day.[19] Stock prices in Asia closed about 2% lower and European shares were down between 1% and 1.5% in midday trading.[12]
Prices rose last week from about $45 to above $51 as U.S. stocks rallied at the end of the week on investor optimism that the worst of a severe recession may be over.[2] While the flu appears to have originated in Mexico, cases have spread to countries around the world, raising concerns about the possibility of a pandemic. That curbed investors' appetite for more risky assets, such as stocks, and boosted demand for the U.S. dollar as a safe haven.[12]
Prices fell as the swine flu that emerged in Mexico and the U.S. over the past week appeared elsewhere in the world, spurring calls for travelers to stay home.[22] Prices fell earlier on signs the Organization of Petroleum Exporting Countries isn'''t cutting output fast enough to reduce a supply glut. U.S. crude stockpiles are at their highest in nearly 19 years.[6]
No one had anticipated a precipitous plunge in oil prices in the fourth quarter of last year. [16] The report by CERA made clear the requirement that oil price swings should be restricted.[1] Whether the recovery can be sustained - and, more importantly, whether the recent good times can return - will largely depend on oil prices.[16] We have seen that with rise in equity markets, oil prices are also gaining on account of rise in risk appetite among traders.[15] Of course, oil prices may still spike because of a sudden political jolt or military conflict.[16] Expect some volatility in the short term, as oil prices will likely bounce along in a narrow range for the next six to 12 months before heading higher.[21] Deposits are still being mined, but only at minium rates in existing fields due low oil prices.[21] There seems to be no reason why oil prices should do anything but flat-line for the next few months. It's why most have missed the signs.[21] Analysts predicted that oil prices were unlikely to strengthen significantly soon.[2]
Regarding the regulation of oil market and price swings, again OPEC should not be left alone.[1] OPEC members' compliance with output cuts is excellent but the organisation still needs to remove 722,000 barrels of oil per day from the market to ensure full compliance, OPEC's Secretary General said on Sunday.[5] OPEC needs to remove 722,000 barrels per day of production to reach full compliance with current targets, OPEC's Secretary General said on Sunday.[13]
Bottom line here is that even with OPEC cutting supply, demand is dropping even faster, as the global economy is in stall mode. [21] The market remains concerned about the weak outlook for energy demand as the global economy continues to deteriorate.[12]
A flu outbreak is the last thing that the global economy needs, said Bill O'Grady, chief markets strategist at Confluence Investment Management in St. Louis. This is probably not a big deal, but there's always a chance it will be and nobody wants to take that chance.[17] "Once activity in the global economy comes back, we could see supply constraints leading to higher prices."[2]
Research firm Informa Global Markets also predicted that the swine flu outbreak would hinder the current weak state of the world economy.[10] The yen strengthened broadly as concerns that an outbreak of swine flu in Mexico may spread into a global pandemic sent investors seeking currencies perceived as safe havens.[13] As many as 103 deaths in Mexico are thought to have been caused by swine flu, which the World Health Organization has called a "public health emergency of international concern."[12]
The flu outbreak in Mexico has killed more than 100 people and already spread to the United States and Europe, prompting fears of a pandemic that boosted the U.S. dollar. [9] Crude rallied above our near-term target level at $51on Friday on good volumes (2,08,000 lots approximately) as a weak dollar along with positive economic data releases from the U.S. boosted risk appetite among investors.[20] Nearly $100 billion in expansion projects are currently on hold. The big Tupi field off the coast of Brazil? Retrieving this oil from six or seven miles down makes no economic sense unless oil is over $90 to $100 a barrel.[21] The organizers of the conference had called on Cambridge Energy Research Associates (CERA) to present a report on the effects of the international economic crisis on oil market.[1] "There is an ongoing softness in economic activities ''' The ongoing question is when economic activity will pick up. That's really what you're looking at for oil at this point," AFP quoted Jason Feer, Asia-Pacific Vice-President for energy analysts Argus Media, as saying.[10]
Amid a drop in oil demand, energy inventories are rising in the United States -- which is the world's biggest oil-consuming nation.[11] "A major pandemic would have strong repercussions on (oil) demand," said Olivier Jakob, analyst at energy analysts Petromatrix.[11]
India and China which are currently consuming about 130 million tons and 368 million tons respectively will play the key role in the oil demand growth from developing Asian countries.[4]
Global energy sector is at a crucial juncture with the ongoing financial crisis adversely affecting the key growth many energy industries.[4] Global Markets Direct'''s '''Top Ten Global Energy Trends in 2009''' focuses on the key challenges and trends in the energy sector during 2009.[4] The global energy sector has been facing major challenges due to the global financial slowdown.[4]
The U.S. financial crisis has affected the financial institutions around the world and also adversely impacted the potential investments in the global energy industry.[4] Many energy companies are facing difficulties in raising funds for investments for new energy projects due to the crisis in global credit markets.[4]
The Global Markets Direct'''s new report provides in-depth analysis of ten most important trends in the global energy industry and its key drivers.[4] The report addresses the various issues the global energy industry will face during 2009 and analyses the challenges and opportunities for potential investment in the energy market.[4]
U.S. crude-oil stockpiles rose 3.86 million barrels to 370.6 million in the week ended April 17, the highest since September 1990, an Energy Department report showed last week. [17] China is quietly buying oil from Oman - 12.7 million barrels in January and February alone - more than any other country.[21] The group agreed last year to cut output by 4.2 million barrels and will review production again when it meets May 28.[17] Our good friends at OPEC - and I use that term loosely - decided to cut the supply, shutting the spigot on 4.2 million barrels since last September. This is equivalent to roughly 5% of the world's supply. According to Mohammed-Ali Khatibi, OPEC may agree to even more cuts when it meets on May 28, if - in its view - the market continues to remain over-supplied.[21] OPEC has announced output quota reductions of 4.2 million barrels a day since September.[3]
Futures decline below $50 a barrel as concerns about a possible pandemic weigh on the market. [12] Gold futures for June delivery gained $7.50, or 0.8 percent, to settle at $914.10 an ounce on the Comex division of Nymex.[6]
We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time.[21] U.S. stock futures were pointing lower, signaling a weak opening for Wall Street.[12]
Oil gained 3.9 percent after better-than-expected earnings from American Express Co., Ford Motor Co. and Microsoft Corp. sent stocks higher.[6] Crude settled up $6.11 at $51.55 on Friday, as early gains on U. S. stocks helped offset government data showing a arger-thanexpected 3.9 million-barrel build in U. S. crude stocks to a 19-year high last week.[18] The spread between the current front month and the five-year forward crude contract CLc61 was at $23.62, based on the June 2014 contract's Friday settlement at $72.16.[13]
At present the contract is trading down by 1.48 percent to Rs 2525 per barrels.[24] If you decide you must get in early, easing your way into a position in the PowerShares DB Crude Oil Double Long ETN (NYSE: DXO). Trading down nearly 90% from its one-year high, DXO could be just the ticket to stellar returns down the road.[21] India's largest private sector oil refiner, Reliance Industries Ltd was trading at Rs.1775 down by over 0.5% during the afternoon trading session.[19]
Although at first glance it would seem demand for oil is generally stable, prices are notoriously hard to predict. [16] Analyst J. Marshall Adkins maintained the group's 2010 price forecast of $65 a barrel.[3] Refineries operated at 83.4% of capacity, up 3.1% from the week before and the highest since January. Prices managed to recover from its losses towards the end of the week, as firm global equity markets coupled with weak dollar against major currencies boosted market sentiments.[15] The strong dollar is just an additional weight on prices. Second - and this has been reported ad nauseum in the press for the last several years, but it bears repeating - mature fields are declining in output.[21] From 2003-2008, oil output grew on average by 1.8pc per year, while the real gross world product expanded almost twice as fast, by 3.4pc. It took progressively less oil to produce a dollar of output.[16] Mexico's Cantarell Field is probably experiencing the most dramatic decline. Mexico is probably in its last year of exports. Saudi Arabia's Ghawar Field - the largest oil field in the world - is also near the end of its life.[21] The consumption of coal is expected to reach 3530.5 million tons of oil equivalents (mmtoe) in 2009, and about 3680 mmtoe by the year 2010.[4]
The result is the reserve to production ratio - a measure of the world's ability to maintain current production - which has been relatively stable for the last 10 years - will start to decline in the absence of any new exploration. Taken together, all these events and scenarios are combining into a perfect setup for higher prices that most analysts have failed to comprehend.[21] The major areas of focus include the impact of the financial crisis on the petroleum sector, challenges in the conventional as well as non conventional energy sector, technological developments in the new and alternative energy sectors and expansion potential of the nuclear energy industry.[4] While many of the short term investments in the ongoing energy projects worldwide would continue, potential long term investments in new projects and expansion plans will be delayed due to the credit crisis.[4]
"For high-cost projects, you probably do need a higher price level to be economically viable," said Ben Westmore, an energy analyst with National Australia Bank in Melbourne. [2] On 19 December 2008, an important conference was arranged in London on the invitation of the British premier. That conference was attended by the officials of the member states of the IEA, OPEC ministers and officials of the International Energy Forum ( MEES, 5 January).[1] Clean energy development in the world is expected to evince notable growth in the years to come.[4] Olivier Jakob of Petromatrix in Switzerland said Monday's decline was a "recurring intra-week pattern," with attention focused on Wednesday's release of the U.S. Commerce Department's advance estimate of economic growth figures for the first quarter of the year.[2]
Brent North Sea crude for delivery in June plunged 2.31 dollars to 49.36 dollars a barrel in London trade. [11] Reformulated blendstock gasoline dropped 0.0679 cents to $1.3741 per gallon.[7] With the largest gas reserve in the world Russia will play a key role in global natural gas export.[4]
SOURCES
1. petroleumworld
2. The Associated Press: Oil falls below $49 amid uncertain outlook
3. The Associated Press: Oil dips to $48 on new reports of swine flu
4. The impact of financial crisis will continue in the global energy sector
5. NYMEX-Oil retreats below $51 after strong gains
6. APA - Oil prices inch up on world markets
7. Oil prices fall on swine flu outbreak - UPI.com
8. Oil falls below $50 on flu pandemic fears | Reuters
9. Oil falls below $50 | Reuters
10. Oil prices fall to under 51 dollars
11. AFP: Oil prices slide on flu swine jitters
12. Oil falls below $50 - Apr. 27, 2009
13. NYMEX-Crude falls amid flu fears, stronger dollar | Markets | Reuters
14. Article - WSJ.com
15. Commodities Technical Analysis | Flashback Energy 27th April, 09 | 27 April 2009 | www.commodityonline.com
16. Oil prices crucial for Russia's economic recovery - Telegraph
17. Oil declines over Swine Flu, economy
18. Commodity Market Outlook for Energy Sector: Nirmal Bang | Stock Watch
19. Commodity Stocks News | Essar Oil plunges 14% on weak crude prices | 27 April 2009 | www.commodityonline.com
20. Commodities Technical Analysis | Crude oil: Profit taking likely at $51.50, may go $55 | 27 April 2009 | www.commodityonline.com
21. The Best Way to Play the Coming Crude Oil Rebound :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website
22. Oil Prices Slump Below $49 a Barrel - WSJ.com
23. Commodities Technical Analysis | Crude oil likely to find support at $49.80 | 27 April 2009 | www.commodityonline.com
24. Commodity Market | Crude oil down on weak global sentiments at MCX | 27 April 2009 | www.commodityonline.com
25. Crude oil melts on weak global cues- Commodities-Markets-The Economic Times
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