10-day oil price slide sets a 35-year record

Weak­en­ing de­mand, grow­ing stock­piles, yield $60 a bar­rel prices , rat­tled in­vestors

San Antonio Express-News - - BUSINESS - By Jordan Blum

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.

Jim Wil­son / New York Times

Pump jacks at work near Wil­lis­ton, N.D., are help­ing stock­piles grow faster than the world’s ris­ing de­mand for oil.

Hasan Ja­mali / As­so­ci­ated Press

Bahrain usu­ally fol­lows OPEC’s lead in pro­duc­tion. OPEC meets Dec. 6 in Vi­enna over ris­ing stock­piles.

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