Crude oil prices fell by more than $1/bbl on both the New York and London futures markets Nov 3, prompting analysts to note that the US light, sweet crude oil price settled below $80/bbl for the first time in more than 2 years.
Saudi Arabia cut its price differentials for US oil cargoes during December, which analyst said triggered fears that the Saudis are trying to directly compete with US shale oil production. Meanwhile, the kingdom raised its oil price differentials for cargoes headed to Asia.
The announcement “did not provide any confidence that Saudi Arabia is willing to cut production,” Olivier Jakob of Petromatrix wrote in a research note. “It is therefore left to prices to move to the point where they force a supply cut in non-OPEC countries or greater motivation in the rest of OPEC for collective action.”
The next meeting of the Organization of Petroleum Exporting Countries is scheduled Nov. 27.
Fitch Ratings issued a Nov. 4 note saying that lower long-term oil prices could depress liquids-focused shale drilling, and prompt a subsequent decline in associated gas, which constitutes a large portion of North America’s total natural gas supply.
Consequently, any decrease in the US associated natural gas supply could support higher gas prices across most regions, which could encourage power utilities to switch electricity generation from gas to coal, Fitch said.
“The effect on steel producers will likely be mixed,” Fitch added. “Higher natural gas prices would increase the cost of finished steel and less drilling could reduce demand for steel in the form of oil country tubular goods.”
Although crude oil prices have retreated significantly, Fitch analysts do not anticipate a US supply response until crude prices reach the $70-75/bbl range on a sustained basis.
“Our base case long-term price assumption for WTI remains at $75/bbl, generally consistent with the Fitch-calculated median full cycle cost of $70/bbl for North American E&P companies,” the credit ratings agency said.
Energy prices
The New York Mercantile Exchange December crude oil contract fell $1.76 on Nov. 3, closing at $78.78/bbl. The January 2015 contract fell $1.58 to $78.84/bbl.
The natural gas contract for December gained 17¢ to a rounded $4.05/MMbtu. The cash gas price at Henry Hub, La., was $3.72/MMbtu, down 8¢.
Heating oil for December delivery was down 2¢ to a rounded $2.49/gal. Reformulated gasoline stock for oxygenate blending for December delivery lost 3¢ to a rounded $2.12/gal.
The December ICE contract for Brent crude oil was down $1.08 to $84.78/bbl. The January 2015 contract fell $1.04 to $85.30/bbl. The ICE gas oil contract for November gained $4.75, settling at $746.50/tonne.
The average price for OPEC’s basket of 12 benchmark crudes was $80.64/bbl on Nov. 3, losing $1.33.
Contact Paula Dittrick at [email protected].
