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In the United States began oil hysteria. Turn close?
Material posted: Publication date: 11-10-2014

In the American media, including The Wall Street Journal, New York Times and the Washington Post, broke "anxiety hysteria" about the prospects of oil production in the US due to the fall in oil prices.

In the oil market in a situation when demand is very low, and given such sentiments, probably reaching market bottom and reversal in the near future. The question is, will drop the price to levels which are so feared in the United States (about $82-85 per barrel of Brent).

To extract crude oil in the US is quite expensive, so falling oil prices are starting to frighten energy companies. The development of shale deposits, for example in North Dakota, made a major contribution to fuel abundance.

World oil prices over the past four weeks fell by approximately 8%. The price of Brent fell on Thursday to $90,05 per barrel, the lowest level in 29 months, the cost of WTI fell to $85,77, and this is the lowest level since December 2012

Weakening oil prices may lead to the end of the energy boom in the United States. Already at the price of $90 many projects start to become uneconomic, shows the latest report of Goldman Sachs Group. Most oil companies break-even point is about $80-85 per barrel.

Economists say the sector could face big problems, and as lower prices companies will dramatically slow down the pace of extraction.

According to Research LLC Wolfe, the first drillers have already responded to the price reduction in the least productive areas of North Dakota Bakken formation. Capital costs will be reduced subject to further fall to $4-5 per barrel.

Stocks of oil producers Continental Resources and Whiting Petroleum, focused on the Bakken, actively reduced, quotes on Thursday fell by more than 5%. Shares of Chesapeake Energy are falling by more than 7%.

A fundamental problem is that the world is awash with oil as demand for energy grows slowly compared to the cooling of the economy around the world, especially in China.

Companies traditionally pulled up to the last before reducing production, as they do not wish to be the first and hope that someone will falter first. Hedging can help firms survive a temporary drop in prices.

In General, the U.S. economy, especially in sectors such as manufacturing and air transport, will benefit from the lower oil prices.

Some oil fields, including the Eagle Ford and Permian basin in Texas, would remain attractive for drillers even at much lower oil prices. According to some experts, in certain parts of the Eagle Ford drilling can be profitable even with reduced prices up to $53.

Most likely, investors will gradually begin to think about revising the plans for next year, but now they are unlikely to start to panic.

While investment banks only reduce long-term forecasts. Barclays, citing unexpectedly high production in Libya has reduced the forecast to $93 per barrel of Brent on average this year. For 2015 the forecast was cut from $107 to $96 per barrel.

Over the last couple of years global oil markets are faced with the fact that oil production in the U.S. rose strongly. With 2011 increased by almost 3 million barrels per day. At the same time, OPEC, which normally adjusts the prices by reducing production, is showing signs of internal disorder.

However, at the end of last month Saudi Arabia said that if prices fall below $90, then production will decrease and prices will return to $100. Today the price of Brent almost reached $88 per barrel, which means the reaction must be followed in the near future.


Tags: USA , resources , NATO

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