Sam Fletcher
Senior Writer
HOUSTON, Nov. 12 -- Oil prices fell 5% Nov. 11, closing below the previous support level of $60/bbl on the New York market, as the US dollar rallied against a basket of currencies, and economic fears discouraged investment in riskier assets.
Now that the $60/bbl bottom has been broken, "there will be a push to force the Organization of Petroleum Exporting Countries into more oil production cuts until Asia reduces the output of petroleum products being sent to the rest of the world," said Olivier Jakob at Petromatrix, Zug, Switzerland. The reformulated blend stock for oxygenate blending (RBOB) crack "has improved on the crude oil correction, but more refinery run cuts will be needed to balance the global product supply and demand," he said.
Moreover, Jakob said, "[T]he relationship of current prices and current volatility will be hard to sustain. Hence, either the current (or lower) prices are a fair value but in that case volatility will have to come off; or if volatility stays the same, a downside overshoot is likely to be met by a V-shape recovery. Between low prices and high volatility, one of the two will have to capitulate."
In the Houston office of Raymond James & Associates Inc., analysts said oil prices were down in premarket trading Nov. 12, "continuing [a] downward trend due to a strengthening dollar and weaker energy demand more than offsetting news of potential supply reductions." They said, "Yesterday, an OPEC source noted that supplies could be cut by an additional 1 million b/d when OPEC meets in Algeria next month.
IEA outlook
Assuming "no new government policies," world energy demand will grow an average 1.6%/year in 2006-30—"an increase of 45%," reported Paris-based International Energy Agency on Nov. 12. "This is slower than projected last year, mainly due to the impact of the economic slowdown, prospects for higher energy prices, and some new policy initiatives," IEA said. "Demand for oil rises from 85 million b/d now to 106 million b/d in 2030—10 million b/d less than projected last year."
According to the report, demand for coal will rise more than any other fuel in absolute terms, accounting for over a third of the increase in energy use. But modern renewables will grow most rapidly, overtaking gas soon after 2010 as the second-largest power source for generating electricity. China and India will account for over half of incremental energy demand to 2030, as the Middle East emerges as a major new demand center. The share of the world's energy consumed in cities will grow from two-thirds to almost three-quarters in 2030. Almost all of the increase in fossil-energy production will occur among countries outside of the Organization for Economic Cooperation and Development, officials said.
IEA said, "These trends call for energy-supply investment of $26.3 trillion to 2030, or over $1 trillion/year. Yet the credit squeeze could delay spending, potentially setting up a supply-crunch that could choke economic recovery."
Still, Nobuo Tanaka, IEA's executive director, said, "A sea change is under way in the upstream oil and gas industry with international oil companies facing dwindling opportunities to increase their reserves and production. In contrast, national companies are projected to account for about 80% of the increase of both oil and gas production to 2030. But it is far from certain that these companies will be willing to make this investment themselves or to attract sufficient capital to keep up the necessary pace of investment. Upstream investment has been rising rapidly in the last few years, but much of the increase is due to surging costs. Expanding production in the lowest-cost countries—most of them in OPEC—will be central to meeting the world's oil needs at reasonable cost."
Tanaka said, "One thing is certain: while market imbalances will feed volatility, the era of cheap oil is over."
The American Petroleum Institute said IEA's report "underscores the pressing need to do all we can in the US to develop our own oil and natural gas resources." API said, "The new administration and Congress should not reimpose the ban on US oil and natural gas development or otherwise set restrictions that would keep off-limits some of our nation's most promising resources. IEA warned in its World Energy Outlook that some 30 million b/d of new global crude oil capacity is needed by 2015 or the world runs the risk of a 'supply crunch that could choke economic recovery.'"
Energy prices
The December contract for benchmark US light, sweet crudes dropped $3.08 to $59.33/bbl Nov. 11 on the New York Mercantile Exchange. That loss was nearly twice the combined gains from the two previous trading sessions. The January contract fell $3.05 to $60.22/bbl. On the US spot market, West Texas Intermediate at Cushing, Okla., was up $3.08 to $59.33/bbl. Heating oil for December lost 7.66¢ to $1.93/gal on NYMEX. The December RBOB contract gave up 6.3¢ to $1.31/gal.
The December natural gas contract fell 5.43¢ to $6.71/MMbtu from the previous session on NYMEX. On the US spot market, gas at Henry Hub, La., dropped 9¢ to $6.97/MMbtu.
In London, the December IPE contract for North Sea Brent lost $3.37 to $55.71/bbl. The November contract for gas oil fell $22.50 to $610.25/tonne.
The average price for OPEC's basket of 13 benchmark crudes dropped $2.53 to $52.24/bbl on Nov. 11.
Contact Sam Fletcher at [email protected].
