Oil price tumbles after OPEC releases 2015 forecast
11 December 2014
by Andy Tully of Oilprice.com
The demand for oil in 2015 will drop to its lowest level since 2002 because of an oversupply of crude and stagnant economies in China and Europe, according to OPEC’s latest forecast. And that’s just one of several sour estimates. OPEC’s monthly report said demand for the cartel’s oil will fall to 28.9 million barrels per day next year, 280,000 barrels lower than its previous forecast and the lowest in 12 years. Add to that a new report from the US government’s Energy Information Administration (EIA), which also cut its 2015 forecast for growth in global oil demand by 240,000 barrels per day, down to 880,000 barrels per day.
For 2014, the EIA expects demand will be about 960,000 barrels per day. And yet on Nov. 27, OPEC refused to lower its production levels below 30 million barrels a day, adding to the oil glut that started with the US boom in high-quality shale oil. As a result, the price of Brent crude has plunged more than 40 percent since June. Futures for US crude also are down dramatically.
“There is a growing realization that the first half of next year is going to look very weak,” Gareth Lewis-Davies, a strategist at the Paris-based bank BNP Paribas, told Reuters. “You start to price that in now.”
On Dec. 9, meanwhile, the American Petroleum Institute (API) reported that inventories of US crude rose during the week ending Dec. 6 by 4.4 million barrels to 377.4 million barrels. The increase was twice as large as had been expected. US backlogs of gasoline and distillates also were up, according to the API.
“Almost all the news flow points to a weaker market,” said one oil analyst, Carsten Fritsch of Commerzbank in Frankfurt. “We have had very bearish API data with large stock builds across the board, and also a very bearish Short-Term Energy Outlook from the EIA, with a sharp reduction in demand growth forecasts for next year.”
Abhishek Deshpande, an oil market analyst at Natixis, agreed. “The fundamentals outlined in the report look quite bearish,” he said. “Fiscal balances are a huge problem for weaker OPEC members, so I won’t be surprised if they call for an emergency meeting [to adjust production levels] early next year.”
In fact this year’s price plunge hasn’t hurt just the weaker OPEC members. Bloomberg reports that oil prices now are too low for 10 of its 12 members to balance their governments’ budgets. The exceptions, the news agency reports, are Kuwait and Qatar. Saudi Arabia may be losing money on oil at the moment, the news agency says, but its treasury has nearly three-quarters of a trillion dollars in reserve.
What’s missing in this flurry of news, as of midday Dec. 10, is what OPEC plans to do about the balancing the oil glut with the expected stretch of lower demand. And the cartel’s next meeting to discuss production levels isn’t scheduled until June 5, 2015.
Source: http://oilprice.com/Energy/Crude-Oil/Oil-Price-Tumbles-After-OPEC-Releases-2015-Forecast.html
Economic slow down coupled with more bio-fuels production and more fuel efficeint ICEVs, HEVs, PHEVs and more and more BEVs-FCEVs will soon start to reduce fossil fuel consumption and price.
High cost production places (like tar sands and shales) may have to temporary stop activities when price falls in the mid-$40s. .
Posted by: HarveyD | 11 December 2014 at 07:49 AM
High cost production places (like tar sands and shales) may have to temporary stop activities when price falls in the mid-$40s.
And that is exactly why OPEC is refusing to lower its production levels. They are trying to squeeze the competition out.
Posted by: ai_vin | 11 December 2014 at 08:58 AM
Now is going to be a very good time to buy an electric car, while sales soften as short-sighted consumers go out and buy a big fuel-hog SUV. (those will be very cheap in a few years after the oil supply glut ends and gasoline shoots back up to $5.00).
Posted by: electric-car-insider.com | 11 December 2014 at 10:08 AM
"..too low for 10 of its 12 members to balance their governments’ budgets.."
That may mean that they have to have economies with tax revenues, imagine that.
"Saudi Arabia may be losing money on oil at the moment..."
Wrong, the government is running a slight deficit because they spend too much and tax less, they make a LOT on oil.
Posted by: SJC | 11 December 2014 at 10:16 AM
With sustained high price came investments in alternative production and alternative fuel vehicles. I must say, it is not too dissatisfying to see the OPEC nations squirm, as well as the oil companies. Don't forget, falling gasoline prices means falling revenues for oil companies too, and along with the higher overhead costs for production that they either pay directly or indirectly they must be feeling the pinch too. I see the stock prices are falling, so I am not the only one who sees this. I think oil is a sell.
Posted by: Brotherkenny4 | 11 December 2014 at 12:43 PM
Saudi Arabia has huge $$$ reserves and can produce as low as $10/barrel. They are crying with joy?
Forcing Shale and Tar Sands producers out is fair-good business like game that we practice all the time.
The idea is to force reduced revenues for Russia, Iran, ISIS. Venuezela etc? Specialist claim that $43/barrel would do it.
Posted by: HarveyD | 11 December 2014 at 02:16 PM
Time for a good currency play with Pound Sterling. The decline in Brent crude pricing will idle many North Sea wells, but there is good news: UK is importing about half its oil and growing, so there will be a soft landing in terms of shrinking domestic production capital, tax revenues, but also balance of payments for energy imports. There could then be significant appreciation of the Pound when the situation is clear, and a great environment for capital investment and diversification.
If the national debt could be managed, this might actually be a good time to double up on new energy technology, and I don't mean tying that to the fortunes of the EU.
Posted by: kalendjay | 11 December 2014 at 02:44 PM
@HarveyD. Somehow I doubt $4.00+ equivalent hydrogen (of you can find it) and bio fuels that weren't price competitive before gas prices plunged, is going to reduce the demand for oil. Most of the reduction has come from the Obama economy dramatically reducing "job lock" and freeing people to be unemployed that had caused a reduction in fossils fuel demand
Posted by: HeltonJA | 12 December 2014 at 02:33 AM
HeltonJA, got that bit of bullpucky from FauxNews did you?
Posted by: ai_vin | 12 December 2014 at 09:17 AM
This time around, increased oil production (in many places) has produced a short-mid term surplus situation. The above, with a bit of speculation is enough to bring the price down.
Low prices will tend to increase consumption. People will buy larger vehicles and drive more with $2/gallon gas than with $4/gallon.
According to specialists, oil may reach $43/barrel before it starts going up again. That could bring gas price close to $1/gallon in many States.
Posted by: HarveyD | 12 December 2014 at 12:56 PM
People don't always go for the cheapest prices. It all depends on what other issues are important to them. One of the guys at the senior's center drives an old VW diesel, and he could (as of today) buy diesel at $1.29/L. Instead he fills up at $1.85/L from the biodiesel co-op.
Posted by: ai_vin | 12 December 2014 at 08:59 PM
Addition: I've just been reminded that in West Vancouver there is a gas station selling E85, at a much higher price than straight gasoline. The fuel is wildly popular with the high performance, souped-up car "tuner" community. With a higher octane level than gasoline, E85 can give their engines a 20-percent boost in horsepower.
Posted by: ai_vin | 12 December 2014 at 09:11 PM
Im glad that oil consumption is going down. I hope tar sands companies just make 10 cents profits on the barrel.
Posted by: gorr | 13 December 2014 at 05:35 PM