10-day oil price slide sets a 35-year record
Weakening demand, growing stockpiles, yield $60 a barrel prices , rattled investors
U.S. oil prices dropped Friday for the 10th straight trading day — the longest stretch in nearly 35 years — falling to their lowest level since February over concerns of weakening demand, growing crude stockpiles and surging production by the world’s top producers.
The plunge is a dramatic reversal from just over a month ago, when crude climbed above $75 a barrel on speculation of looming supply shortages and the return of $100 a barrel oil. Crude fell as low as $59.26 a barrel in intraday trading before settling at $60.19 in New York, down about 1 percent. It marked the longest losing streak for the commodity since 1984.
Oil has plunged 21 percent since hitting its recent peak of $76.41 a barrel in early October. While the decline is good news for consumers benefiting from lower gasoline prices, Texas’ energy sector is beginning to fret about declining profitability after just recovering from the worst oil bust in a generation.
“Oil has fallen pretty fast and furious,” said James West, an energy analyst with Evercore ISI in New York. “The market is showing a lot of nervousness.” How did it happen so quickly? Analysts said that traders bid up crude on expectations of dwindling supplies as sanctions on Iranian crude exports took significant amounts of oil off global markets, pipeline shortages in the Permian Basin in West Texas slowed U.S. production, and worldwide demand grew.
Global oil demand continues to rise, but it is being outpaced by
supply. World oil production in September of about 100 million barrels a day was 2.6 million barrels per day higher than a year ago, according to the International Energy Agency. That’s double the estimated demand growth this year of 1.3 million barrels a day.
The ongoing shale story
Nowhere has production risen as quickly as in the U.S. shale plays, led by Permian, despite the predictions of a pipeline-induced slowdown.
A year ago, U.S. oil production hit 10 million barrels a day for the first time since 1970. Now, U.S. output has reached a record of 11.6 million barrels a day, with nearly one-third produced in in West Texas. “The Permian continues to grow despite the prevailing belief that the Permian can’t grow,” West said.
Meanwhile, less Iranian oil is coming off the market following waivers granted by the Trump administration that would allow many of the world’s biggest energy consumers, including China, India and Japan, to continue to buy Iranian crude for at least six months. And, in anticipation of the sanctions taking a bigger bite from global supplies, both Russia and Saudi Arabia, the second and third biggest producers after the United States, kicked up their production.
At $60 a barrel, oil prices remain relatively healthy, analysts said, and companies can still make money. Pavel Molchanov, an energy analyst for Raymond James, said a bottom to this latest sell-off doesn’t appear too far off. He said the recent plunge is a temporary setback before oil prices resume an upward trajectory.
“Oil is having a normal correction within a bull market,” he said.
Looking overseas
Oil markets have reacted in recent weeks to increasing U.S. stockpiles, which have climbed by millions of barrels, according to the U.S. Energy Department.
But Molchanov said markets seem too focused on those increases — some which are the result of normal refinery downtime for maintenance following the peak summer driving season — and the output of largest producers. At the same time, markets are overlooking rapidly falling production in economically suffering countries like Venezuela.
Even with the softening of the sanctions, Iran’s exports will continue to decline, Molchanov said. In addition, production in Mexico, Norway and the United Kingdom is declining, while political instability threatens production in Libya and Nigeria.
And now there’s talk that the Saudis and Russians may informally agree to curtail their production again to help stabilize crude prices, analysts said. The Organization of the Petroleum Exporting Countries holds its next meeting on Dec. 6 in Vienna.
Brian Youngberg, an energy analyst with Edward Jones in St. Louis, said prices in oil markets can quickly change their trajectory, since they often move on anecdotal evidence, conflicting reports and sentiment. A hint from OPEC that it might cut production can send prices soaring; a tweet from President Donald Trump calling on Saudi Arabia boost production can sent them sliding.
“There’s so many pieces around the world that go into oil prices that make it almost impossible to predict where they’ll end up,” Youngberg said.