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What If The Oil Rebound Never Happens?  

The IEA’s September Oil Market…

Three Triggers That Will Send Oil Crashing Again

Three Triggers That Will Send Oil Crashing Again

Oil prices bounced back on March 24 on a sliding U.S. Dollar, but the pain may not be over yet.

Oil storage capacity continues to deplete. Storage levels at Cushing, Oklahoma, home to the crucial WTI benchmark, are at record levels. As of March 13, Cushing oil inventories hit 54.4 million barrels, the highest ever, according to the Energy Information Administration. That means that Cushing’s storage is now 77 percent full, up from just 27 percent in October 2014. The glut of oil has led to a flood of crude being diverted into storage tanks. As storage nears capacity, it becomes more likely that prices could drop significantly below current levels. That, of course, depends on if drillers cut back production enough to slow the storage build. Related: Oil Price Speed Limit Presaging An Age Of Austerity?

CushingCapacity

Yet another reason to suggest that oil prices could fall over the next two to three months is the annual planned maintenance that takes place at many U.S. refineries. Spring maintenance often leads to a significant volume of refining capacity temporarily closed down for several months. As that occurs, demand for domestic crude in the United States will decline, potentially pushing down prices. That also would force more output into storage, again exacerbating the shrinking ability for U.S. storage to handle more oil. Related: Natural Gas Prices To Crash Unless Rig Count Falls Fast

WTI could drop to $35 per barrel in the coming months, and Brent may fall to just $51.30 per barrel, according to projections from Facts Global Energy and Societe General.

The predictions echo those made by Goldman Sachs earlier this month, which forecasted oil prices declining to $40 per barrel. Goldman cited weak demand coming from Japan and Korea, which could rely more and more on LNG to offset oil in the electric power sector. Cutting even deeper into oil demand is the possibility that Japan will restart two nuclear reactors, easing the island-nation’s dependence on imported oil to meet power demands. Related: Oil Prices Will Recover: Market Fundamentals Are Working

A renewed bout of weakness in the oil markets, notwithstanding this week’s price gains, was further backed up by comments from the Saudi Arabia’s OPEC governor Mohammed al-Madi, who said on March 22 that a return to $100 per barrel would be hard to reach. Saudi Arabia’s Oil Minister Ali al-Naimi reiterated that position, blaming non-OPEC producers for their unwillingness to cut back on production. He said that OPEC will not do it alone, and even revealed the fact that Saudi Arabia recently boosted its oil production to 10 million barrels per day. “The production of OPEC is 30 percent of the market, 70 percent from non-OPEC...everybody is supposed to participate if we want to improve prices,” al-Naimi said.

By Charles Kennedy for Oilprice.com

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  • Pissed off Canadian on March 24 2015 said:
    Only the us gains from this scenario.
    They want to send us more of their oil but won't accept Keystone?

    I say their attempt to bankrupt the Canadian energy industry is an open act of war.
    When they run out of water Canada better say no. I bet Obama will want pipelines then.

    Shame on the US for destroying the trust of a nation as good as Canada.

    It would be better we switched geographical positions with a Middle East country, we would have more supportive neighbors.
  • Keenan on March 24 2015 said:
    Wow Mr. "Pissed off Canadian", I think your anger is misplaced. If I were a Canadian, I would be Hell's pissed at your corrupt and shortsighted leader Mr Harper, for hinging Canada's future on one notoriously unstable, environmentally cataclysmic fossil fuel from the dirtiest most destructive source in the whole world that, if is ever exploited on anything close to the scale that this former oil man wants, will increase globel temperatures 6 degrees singlehandedly, let alone destroy a mindboggingy massive area of Alberta's environment. You and other's like Harper's ilk must really hate the planet and don't give a damn about our children's future to support such an I sane policy. Your own fellow Canadians have successfully blocked Trans Canada's attempt to build pipelines to the Pacific and Atlantic Oceans because they know the risks of inevitable spills, etc.

    So why should the US accept this risky pipeline running over the top of one of our most vulnerable water aquifers which you laughably call "an act of war"? How ironic that out of our one side of your mouth, you assert that when the US runs short of water in the future that Canada should punish the US by blocking warwe exports, but out of the other side of your mouth you support dangerous project that could endanger one of the most important water resources of the US. Your mind is a jumbled mess. Perhaps you drank too much Harper coolaide.
  • Jack on March 24 2015 said:
    Easy there, Canadian. I live in oil country in Texas- and trust me, this is hurting us too. My town is set to go from boom to bust quickly if this doesn't change.
  • jass on March 25 2015 said:
    Please USA stop this shale oil extraction as it's making us canadians look real bad extracting dirty oil from the oilsands. We have invested too much money in this and the livelihood of your neighbours is at stake. So I beg of you to stop this SHALE revolution as this will bankrupt our oil sands project. PS who gives a damm about the enviorment !!
  • rick386 on March 25 2015 said:
    I was looking at Transocean.

    Market Capitalization (Mid Cap)$5.4B
    Enterprise Value$13.3B
    Shares Outstanding363.3MShares
    Held By Institutions79%
    Short Interest (as of 03/15/2015)31.8%

    Over a hundred million shares short?
    Seems to me that RIG could be acquired and the buyer could almost double their money liquidating assets.
    I could be wrong, but, when oil prices start to go back up, there could be a hell of a short squeeze.
  • rick386 on March 25 2015 said:
    I was looking at Transocean.

    Market Capitalization (Mid Cap)$5.4B
    Enterprise Value$13.3B
    Shares Outstanding363.3MShares
    Held By Institutions79%
    Short Interest (as of 03/15/2015)31.8%

    Over a hundred million shares short?
    Seems to me that RIG could be acquired and the buyer could almost double their money liquidating assets.
    I could be wrong, but, when oil prices start to go back up, there could be a hell of a short squeeze.
  • Nick Kelly on March 25 2015 said:
    Re: RIG - or if it doesn't go up there could be a long squeeze. Liquidate assets? You mean used platforms and break up RIG? That assigns nothing to its enterprise/ expertise/ good will etc. which in such a complex business is a bigger factor than a shoe store.
    But if you were really convinced that oil was going back up not 'when' but say within a year RIG options would be interesting.
  • Keenan on March 25 2015 said:
    The hypocrisy of right wing republicans. In trying to force this Keystone XL project throughout should make any republican embarrassed to call themselves a republican. These supposed champions of the sanctity of private property are planning on using the power of government through eminent domain the forcibly take private property from unwilling farmers and hand it over to a foreign corporation for no benefit to Americans, who will be taking all the risks. Think about that. Republicans who are always waving the flag claiming to be the most patriotic are proving that they are the most extremely unpatriotic with nothing but contempt for American farmers who will have their land forcibly taken from them and given to a foreign corporation. If that doesn't prove once and for all that republicans are disgusting unpatriotic hypocrites I don't know what will.
  • Brin Barbosa on March 26 2015 said:
    Foreign misadventure will prevent further drops. Everyone wondered when the Saudis would twitch first. They did it 2008/2009 when oil price plummeted. The threat from Yemen is no greater today than 6 months ago. The Saudis have simply indicated by drawing a line in the sand that Brent Crude will not stay at or below $55 per barrel.
  • Alex on March 26 2015 said:
    Hmm... not sure I agree. Oil price collapse since 2014 had the effect to change the the narrative to bearish - facts about falling production around the world (and the inability of fracking to cover the shortfall) are left out of the discussion. Fact: oil extraction is becoming increasingly expensive to society in real terms. Central banks can't print energy. That oil got cheaper in nominal terms ($$) can only be a temporary abberation.

    Here: https://thejubilee.wordpress.com/2015/03/25/our-energy-predicament/
  • Not really Pissed off Canadian on March 26 2015 said:
    Thanks Keenan I got a bite...
    We don't need Keystone but Canada won't accept any pipelines coming North to ship your dirty fracking oil to our east coast. We make enough that soon we will build energy east and look after ourselves. So keep fooling yourself that the US only makes clean oil. And what will the Americans do if Harper continues to sell Canadian assets to China? Oil is going to come out of ground and one day you will turn to us and it will be too late. Better to build a measly pipeline then have other nations slowly take over Canada's energy. China is doing it in South America and Africa now and have bought a Canadian project already.

    I hope your blood pressure is okay, I was poking the American bear.
    We may be small but the AMericans are running out of friends.
    You need us more than you know.

    But don't worry, Jesus is coming back soon, and it's best we worry about getting our houses in order and making sure we don't miss out on the one thing that is the most important to us,
  • Keenan on March 28 2015 said:
    Mr. Canadian, it continues to astound me how misinformed you are. It is not controversial about the fact that extracting oil from tar sands is the most environmentally costly method in the world in every way, from its contribution to global warming, to the amount of destructiveness to the landscape, to the amount of water and other resources it takes in the process. it is an environmental catastrophe. Yes, all methods Of oil extraction have significant environmental impact, but to pretend that tar sands extraction is no different than conventional methods is to be either very dishonest or very uninformed. If you really believe Jesus is coming soon, that may explain your lack of critical thinking skills. Religious people tend to be more prone to believing in myths and fairy tales.

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