• 20 mins OPEC Set To Move Fast On Cut Extension Decision
  • 3 hours Nigeria Makes First Step Away From Oil
  • 14 hours Russia Approves Profit-Based Oil Tax For 2019
  • 18 hours French Strike Disrupts Exxon And Total’s Oil Product Shipments
  • 20 hours Kurdistan’s Oil Exports Still Below Pre-Conflict Levels
  • 22 hours Oil Production Cuts Taking A Toll On Russia’s Economy
  • 1 day Aramco In Talks With Chinese Petrochemical Producers
  • 1 day Federal Judge Grants Go-Ahead On Keystone XL Lawsuit
  • 1 day Maduro Names Chavez’ Cousin As Citgo Boss
  • 1 day Bidding Action Heats Up In UK’s Continental Shelf
  • 2 days Keystone Pipeline Restart Still Unknown
  • 2 days UK Offers North Sea Oil Producers Tax Relief To Boost Investment
  • 2 days Iraq Wants To Build Gas Pipeline To Kuwait In Blow To Shell
  • 2 days Trader Trafigura Raises Share Of Oil Purchases From State Firms
  • 2 days German Energy Group Uniper Rejects $9B Finnish Takeover Bid
  • 2 days Total Could Lose Big If It Pulls Out Of South Pars Deal
  • 2 days Dakota Watchdog Warns It Could Revoke Keystone XL Approval
  • 3 days Oil Prices Rise After API Reports Major Crude Draw
  • 3 days Citgo President And 5 VPs Arrested On Embezzlement Charges
  • 3 days Gazprom Speaks Out Against OPEC Production Cut Extension
  • 3 days Statoil Looks To Lighter Oil To Boost Profitability
  • 3 days Oil Billionaire Becomes Wind Energy’s Top Influencer
  • 3 days Transneft Warns Urals Oil Quality Reaching Critical Levels
  • 3 days Whitefish Energy Suspends Work In Puerto Rico
  • 3 days U.S. Authorities Arrest Two On Major Energy Corruption Scheme
  • 4 days Thanksgiving Gas Prices At 3-Year High
  • 4 days Iraq’s Giant Majnoon Oilfield Attracts Attention Of Supermajors
  • 4 days South Iraq Oil Exports Close To Record High To Offset Kirkuk Drop
  • 4 days Iraqi Forces Find Mass Graves In Oil Wells Near Kirkuk
  • 4 days Chevron Joint Venture Signs $1.7B Oil, Gas Deal In Nigeria
  • 4 days Iraq Steps In To Offset Falling Venezuela Oil Production
  • 4 days ConocoPhillips Sets Price Ceiling For New Projects
  • 7 days Shell Oil Trading Head Steps Down After 29 Years
  • 7 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 7 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 7 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 7 days Venezuela Officially In Default
  • 7 days Iran Prepares To Export LNG To Boost Trade Relations
  • 7 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 7 days Saudi Oil Minister: Markets Will Not Rebalance By March
Alt Text

$40 WTI Is Now More Realistic Than $60

According to one analyst, oil…

Alt Text

Bankrupt Venezuela Asks Partners For Free Oil

Following Venezuela’s official default last…

Alt Text

EU Aims To Reform World’s Biggest Carbon Market

The European Union is divided…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Is $50 Oil Still Realistic?


Oil prices have plunged back to levels not seen since OPEC announced its original production cut deal last November. Prices have been falling since the group extended their cuts for another nine months, a two-week slide that puts WTI back in the mid-$40s.

The underlying factors for the price drop are the same as before: U.S. shale production continues to rise; inventories remain elevated; and the markets are concerned that the OPEC cuts are not doing enough to drain the surplus.

But, in fact, the outlook has grown a bit darker more recently, as downside risks to the market have grown.

The immediate spark to the sharp percent selloff in crude oil prices on Wednesday came from the unexpectedly bearish EIA inventory report, which surprised market analysts. The report was especially bad news because both crude oil and gasoline inventories increased by 3.3 million barrels each at a time when stocks typically decline heading into the driving season. The increase ended several consecutive weeks of drawdowns and poured cold water on any hopes of swift rebound in prices – WTI and Brent dropped roughly 5 percent.

That comes after the EIA issued a statement saying that it is growing more confident that U.S. oil production will surge past 10 million barrels per day (mb/d) by 2018, which would be an all-time record for the United States. Piling on, the EIA said that it expects relatively unimpressive drawdowns in inventories this year, projecting declines of just 0.2 mb/d worldwide in 2017. And in what should be very worrying for OPEC and other oil bulls, the EIA also sees inventories rising again in 2018 by 0.1 mb/d.

But the oil market also has some other immediate problems. Nigeria has presented downside risks to oil prices for quite some time, although the threat was latent for most of this year. Everyone knew that Nigeria’s disrupted pipelines and export terminals could come back at some point.

That day has finally arrived. Royal Dutch Shell just lifted its force majeure on its Forcados oil shipments on Tuesday, paving the way for a flood of new supply. The Forcados shipments – an estimated 250,000 barrels per day – have been offline for more than a year. Nigeria is set to add the equivalent of one-fifth of the size of the OPEC cuts back into the market. “The market is already drowning” in oil supplies that are of similar quality to Forcados, Ehsan Ul-Haq, an oil analyst at KBC Advanced Technologies, told Bloomberg.

In what could be a temporary jolt to oil prices, Libya’s largest oil field temporarily shut down on Wednesday due to a workers’ strike. But output from the 270,000-barrel-per-day Sharara field will probably come back online pretty soon, putting Libya’s total output back at its highest levels in years at 850,000 bpd.

One wildcard over the past few days was the severing of diplomatic ties by several Gulf States with Qatar over the latter’s support for terrorism. Saudi Arabia, the UAE, Bahrain and Egypt cut diplomatic ties with Qatar, a move that temporarily rattled the oil market. The initial reaction from market analysts was that any tension in the Middle East is always bullish for crude. If Qatari shipments were disrupted for some reason, that would erase some supply. But the flip side is that hostility between fellow OPEC members could undermine mutual trust, threatening to derail compliance with the production cuts. That would be decidedly bearish for oil prices. However, for now, many experts think that the tension won’t have any immediate impact, especially since Qatar was a major driver of the OPEC deal. Related: Is Russia Running Out Of Patience With OPEC?

Looking further out, there is a much larger, if less certain, risk to oil prices. Several Russian officials have made some eye-raising comments recently regarding their production; comments that do not necessarily mean anything concrete right now, but offer an important reminder that Russia’s willingness to prop up oil prices cannot be taken for granted.

“Well, if the question is how Opec is going to exit from these arrangements: abruptly,” Rosneft’s CEO Igor Sechin told the FT. “We will also be prepared. If something goes wrong, we will not let them occupy our markets. We’ll defend ourselves.” Sechin said that Russia was willing to go along with the OPEC deal for now, but that if U.S. shale comes back too much, it might question the wisdom of restraining output. Right now Russia’s interests are “aligned” with OPEC, but “I assume that at some point in time, after some time, these interests will diverge. And we will respond to that.”

That is a pretty chilling and not-so-subtle threat to ramp up production if prices continue to flounder. Indeed, Russia is preparing for lower prices ahead. “We’re actually ready to live forever with the oil price at $40 or below,” Russian Economy Minister Maxim Oreshkin said in a Bloomberg TV interview at the St. Petersburg International Economic Forum on June 1. “All macroeconomic policy is now based on the assumption of the oil price of $40.” Related: Hydrocarbon King: U.S. Ranks No.1 In 2016

It is hard not to view the statements as a threat to prices. “There were some stark comments from the Rosneft CEO who said that there is a plan by producers to flood the market with oil,” John Kilduff, a partner at Again Capital LLC, told Bloomberg last week. “His comments certainly registered with the market. As you look back now at the deal, it looks increasingly lame."

Taken altogether, the end result could be that oil gets stuck in the mid-$40s in the near run, rather than gradually rising beyond $50 and closer to $60 as previously expected.

“The worry in the market is that the overhang is definitely not going to be taken care of,” Gene. McGillian, research manager at Tradition Energy, told the WSJ. “Unless OPEC wants to do something else, the idea of $50 or $55 oil is basically not realistic.”

By Nick Cunningham, Oilprice.com

More Top Reads From Oilprice.com:

Back to homepage

Leave a comment
  • spin on June 09 2017 said:
    Here's a novel suggestion, instead of trying to fix and manipulate the market why not let producer supply and consumer demand regulate the price of oil and then focus on developing technology and expertise to reduce your costs.
  • DK on June 15 2017 said:
    Because speculators can't make money with natural supply and demand. The market is based on so many variables however, manipulation strategies are not sustainable for very long.
  • Kevin Were on June 20 2017 said:
    Doesn't matter what price it hits, we continue to see the highest fuel prices here in Australia due to the fuel giants greed. Cheaper for them just means higher profits and the real people of the planet going around doing the real work suffer for it.

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News