Oil Prices are Going Up and Down
Oil prices have been faltering after finally starting to rise. Last week saw the first weekly loss. The price of Brent crude reached nearly a high of over $64 a barrel but has since retreated. As political tensions ease through the end of the year crude could continue to fall. Everyone is anticipating the OPEC's meeting in Vienna the coming week as that will discuss next steps on a production cut agreement that runs through together with the market marching its way toward equilibrium.
The anticipation, of course, is that the deal will be extended, but there are growing concerns that Russia, the biggest crude oil producer on earth that has committed to reducing output by 0.300 million b/d, isn't fully on board. Russia is currently mulling a delay in the decision to extend the cut. There's no urgency in this stage: using a budget based on some of the manufacturing costs and $40 Brent, Russia can stay in the dark with oil prices considerably lower than they are.
Moreover, there is a couple of ways higher oil prices really hurt big exporters that usually go unmentioned: the fast emerging target of economic diversification becomes endangered, higher petroleum prices lower demand whilst also encouraging alternatives (e.g., electric vehicle sales are crushed by the petroleum price fall), and higher oil prices promote overproduction that could result in another price collapse. No wonder then that the oil price collapse has made producers cautious of relying on higher prices as they did.
As for the U.S., surprisingly still the fastest growing of all oil manufacturers though at least 2025, crude manufacturing could surge to 13-14 million b/d after that, up from ~9.2 million b/d this past year. Shale is attractive because of its costs that are aggressive, and spending could be raised and lowered. Shale operations can respond to markets. But instead of obsessing over upping output, some shale manufacturers are looking to raise shareholder returns after years of profitability. For example, ConocoPhillips has mastered investing in jobs that require an oil price of $50 or greater to make a profit. The company can generate significant excess cash flow at that price for buying back more stock, investing in new projects, and paying off money.
Oil-directed rigs are up 9 to 738 since November 3. EIA has U.S. crude production averaging 9.95 million b/d following year, which would be an record. Costs made the business enhance efficacy and cut prices. With crude futures up a third or so since June, manufacturers have raced to lock in profits by selling future creation, i.e., hedging. The economics of the play illustrates the benefits of WTI remaining where it's. Oil is currently selling at $ 45, and if prices are at $ 20 per barrel, the margin is $25. But if oil is selling at $55, the margin increases 40% to $35. EIA's latest (November 12) prediction signals a price retreat but sufficient for U.S. companies to profit:
The projection that oil prices will remain in the $50-60 range is a mainstream one that prices over $60 are/were temporary. The sad case of Venezuela here, however, will continue to be bullish for oil prices, with production expected to involuntarily drop 0.250 million b/d this season and 0.300 million b/d next year.
In the end, regardless of how you examine the current oil market keep in mind that the OPEC, non-OPEC manufacturing cuts must end sooner or later.
