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Tuesday, 3 February 2015

Oil erases losses for 2015 as majors take action

The price of oil continued its rally Tuesday, with producers announcing spending cuts which added to a slew of positive factors helping to drive the commodity higher.

U.S. crude prices climbed about $1.5 a barrel on Tuesday morning and was trading above $51 a barrel by 10:30 a.m GMT. Brent crude for March delivery opened at $55 a barrel and had risen to $56.53 a barrel by the same time. Both have seen gains of around 3 percent in morning trade and have climbed around 16 percent since Friday.

It came as BP CEO Bob Dudley told CNBC Tuesday that the number of U.S. shale rigs was "dropping like a stone," but added that it would be a while before excess supply worked its way out of the market.

"The really good parts of the shale (industry) can sustain $30, but those that are around the fringes of that, they're going to struggle. I think we'll see eventually…(the number) flatten out and then drop."

Oil has seen a few sessions of firmer prices, with both benchmarks now erasing the losses they have seen to date in 2015.


The dramatic fall in the price of oil - which tanked as much as 60 percent from mid-June - has been due to weak demand, a strong dollar and booming U.S. oil production, according to the International Energy Agency (IEA).




5 comments:

  1. Pemex to up E&P capex - CEO


    Mexican state giant needs to double spending, with collaborations and large pipeline plans eyed.

    CW8888: Got hope for Keppel?

    ReplyDelete
  2. [LONDON] BP Plc boss Bob Dudley is very bearish on the price of oil. He says this feels the same as 1986, when oil slumped from US$30 a barrel to US$10 and didn't recover until Iraq invaded Kuwait in 1990.

    "The fundamental supply and demand does remind me of 1986 a bit, where we could go into a period in this decade of lower oil prices," Mr Dudley said a Bloomberg TV interview, adding prices may stay in a range below US$60 for as long as three years. "It will be a long time before we see US$100 again."

    His view puts him at odds with others in the industry. Claudio Descalzi, chief executive officer of Italy's Eni SpA, said last month he expects prices to rebound before the end of the year and then head toward US$90 barrel. Opec Secretary-General Abdalla El-Badri warned last week that prices could boomerang to US$200 a barrel as the oil industry takes an ax to investment in new projects.

    The price of New York crude futures will average US$74 next year and US$75 in 2017, according to the average forecast of analysts surveyed by Bloomberg. Oil rose for a third day to US$51.28 on Tuesday, but remains less than half its June high of US$107.

    ReplyDelete
  3. Oil rallied for a third straight day on Tuesday as bulls convinced the market had hit bottom after a seven-month rout pounced on a weak dollar and cuts in oil firms' spending plans despite signs crude stocks were rising without let up.

    U.S. crude closed up $3.48, or 7 percent, at $53.05 per barrel, marking its highest settlement this year. WTI crude rose as much as 9.4 percent earlier to a session high of $54.24.

    Benchmark Brent crude oil was last up $3 at $58 a barrel.

    US. crude prices have gained about 20 percent since the market was jolted by news on Friday that the number of U.S. oil drilling rigs had fallen their most in a week in nearly 30 years after the 60 percent selloff that began last summer.

    The dollar dropped to a more than one-week low against a basket of currencies on Tuesday, making dollar-priced commodities a more attractive buy.

    ReplyDelete
  4. NEW YORK: Global oil prices slid on Wednesday (Feb 4) following a three-day rally with the main US contract sinking more than US$4 as US crude stockpiles mounted.

    US benchmark West Texas Intermediate for delivery in March tumbled US$4.60, or 8.7 per cent from Tuesday's close, to US$48.45 a barrel. In London trade Brent North Sea crude for March shed US$3.75 at US$54.16.

    The drop wiped out much of the gains of the three-day rally, but crude remained well above its lows for the year. The market is well-supplied and there had been little concrete in the supply-demand equation to underpin the rise.

    US oil stockpiles mounted again last week, hitting 30-year highs, according to US government data. Commercial crude inventories rose by 6.3 million barrels to hit a record 413.1 million barrels. Some of that could be explained by the worker strikes at refiners representing some 10 per cent of all US capacity.

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  5. LONDON: Oil’s dramatic price fall since mid-2014 cannot be explained by changes in production and consumption alone, with hedging and energy firms' high debt levels also playing a part, the Bank for International Settlements (BIS) said on Saturday.

    The BIS compared oil's recent fall, which saw prices collapse to below US$50 a barrel from levels of above US$100, with declines in 1996 and 2006 and concluded that unlike on previous occasions, this time oil production has been close to expectations and consumption was only slightly below forecasts.

    “The steepness of the price decline and very large day-to-day price changes are reminiscent of a financial asset,” said the organization, representing central banks around the world.

    While the recent OPEC decision not to cut production “has been key to the fall”, other factors could have exacerbated it, the BIS said. These included increased indebtedness in the oil sector in recent years.

    The Basel-based organization said this greater debt burden may have had an influence on the oil market itself.

    “Against this background of high debt, a fall in the price of oil weakens the balance sheets of producers and tightens credit conditions, potentially exacerbating the price drop as a result of sales of oil assets,” it said.

    The BIS said reduced cash flows as a result of a lower oil price heightened the risk of firms being unable to meet interest payments and this could lead them to continue pumping oil to maintain cash flows, delaying a reduction in supply.

    This may be a particular factor in emerging markets where a stronger dollar would hit indebted companies even harder.

    An increased reliance by oil producers on swap dealers as counterparties for their hedging since 2010 may also have played a part. Dealers may "at times of heightened volatility and balance sheet strain for leveraged entities... become less willing to sell protection to oil producers," the BIS said.

    It said volatility in the oil price "suggests that dealers may have behaved pro cyclically – cutting back positions whenever financial conditions become more turbulent".

    This in turn may have led producers wishing to hedge falling revenues to turn to derivatives markets directly and could have played a role in recent price moves, the BIS said.

    (Reporting by Alexander Smith; Editing by Frances Kerry)

    - Reuters

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