• 5 days Retail On Pace For Most Bankruptcies And Store Closures Ever In One Year: BDO
  • 10 minutes America Could Go Fully Electric Right Now
  • 7 days Majors Oil COs diversify into Renewables ? What synergies forget have with Solar Panels and Wind Tirbines ? None !
  • 4 mins Most ridiculous green proposal
  • 9 hours China Sets Its Sights On Global [EV, AI, CRISPR, Fusion, Navel Lint Collector] Dominance
  • 17 mins Video Evidence that the CCP controls Joe Biden
  • 38 mins Rethinking election outcomes for oil.
  • 2 hours The City of Sturgis Update on the Motorcycle Rally held there, and the MSM's reporting hence
  • 22 hours The Leslie Stahl/60 Minutes Interview with President Trump
  • 7 hours P@A will cost Texas Taxpayers $117 Billion.
  • 6 hours Republicans Have Become the Party of Hate
  • 7 hours Australia’s Commodities Heartland Set for Major Hydrogen Plant
  • 1 day WallStreet Journal editorial " . . Big Tech-Media are the propaganda arm of Democrat Party leading to one party autocratic rule. " This is the State of the Union.
  • 22 hours Permian in for Prosperous and Bright Future
  • 1 day Clean Energy Is Canceling Gas Plants
  • 2 days Even Obama can't muster a crowd to support Biden.
  • 1 day Vote Biden for Higher Oil Prices
  • 2 days Irina Slav has a good article - Regarding Investors & Oil
Is Brazil’s Oil Boom Immune To COVID?

Is Brazil’s Oil Boom Immune To COVID?

Despite low oil prices and…

Oil Prices Fall As Libya Looks To Bring Back 1 Million Bpd

Oil Prices Fall As Libya Looks To Bring Back 1 Million Bpd

Libya’s crude oil production could…

Evan Kelly

Evan Kelly

More Info

Premium Content

Oil And Natural Gas Prices Crashing Once Again

Third quarter earnings reports are starting to trickle in and the numbers will likely be poor. BP (NYSE: BP) kicked things off on October 27, reporting that its profits fell by 40 percent compared to the third quarter in 2014, but they were also up $500 million from Q2 2015.

BP said that it is planning on oil remaining at $60 per barrel through 2017 and that it would align its operations to fit that assumption. The British oil giant also once again cut its spending plans, with expectations that capital expenditure will drop to $19 billion in 2015, then down to $17 to $19 billion per year through 2017. A year ago, the company had planned on spending $24 to $26 billion in 2015. BP expects to achieve $10 billion in divestment by the end of this year, plus an additional $3 to $5 billion in divestment in 2016, and $2 to $3 billion annually thereafter. The vision reflects a plan to significantly shrink its footprint over the next few years, recognizing the fact that it is overstretched in a low oil price environment. Despite the considerable decline in profits, BP beat analysts’ estimates. Related: Iran May Not Be That Attractive To Oil Industry After All

The Wall Street Journal reported that the four largest oil companies in the world – BP (NYSE: BP), ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX), and Royal Dutch Shell (NYSE: RDS.A) – had a combined cash flow deficit of $20 billion in the first six months of 2015. All four have plans to bring spending down sufficiently so that revenues cover capex and dividends, but it may take a few years. The emphasis on spending, with promises not to touch dividends, suggests that a large number of planned investments won’t move forward. The WSJ says that cuts in spending have led to the postponement of projects that would ultimately yield 7.3 billion barrels of oil equivalent. BP’s CEO Bob Dudley told the Financial Times that the company was deferring an investment decision on the Mad Dog offshore project in the Gulf of Mexico until next year, for instance. 

While the oil majors can muddle through for a while, offshore drillers are already cutting dividends. Noble Corp. (NYSE: NE) announced on October 23 a decision to cut its dividend by more than half. Precision Drilling (NYSE: PDS) will probably be forced to cut its dividend, according to Scotiabank.

In other negative news for E&P companies, Maersk Oil, a Danish oil company and subsidiary of A.P. Møller-Maersk (OTCPK:AMKAF), announced a decision to cut its workforce by 10 to 12 percent. Maersk operates in the North Sea, a region beset with high production costs. Related: Next Few Weeks Will Reveal Full Extent Of Oil Industry Suffering

The negative news from across the industry is a reflection of the poor pricing exhibited in the third quarter. Oil prices careened downwards this summer after jumping to $60 per barrel in June, staying below $50 per barrel for much of the third quarter. Oil prices sunk again over the past week on growing fears that the glut is not abating as quickly as once hoped. WTI dipped below $44 per barrel on October 27, and Brent was down to $47 per barrel.

In a further sign of weakness, contango has returned to the oil markets, a phenomenon in which front month futures prices are much cheaper than longer-term contracts. The pricing quirk develops due to a glut of supplies today, with the expectation that markets will tighten at some point in the future. The contango for WTI is the largest since May 2015, widening after a rapid increase in crude storage levels. The EIA reported last week that crude inventories jumped by 8 million barrels, highlighting the ongoing glut in supply. WTI for December delivery is now discounted by 95 cents relative to January contracts, the widest discount in five months. A contango situation may sound like arcane financial jargon, but it is a persuasive signal of abundant short-term supply.

Rising storage levels contributed to increased bearish sentiment in the oil markets. Speculators shorted oil at the highest rate since July, rising by 18 percent for the week ending on October 20, according to new data from the U.S. Commodity Futures Trading Commission. “The decline in U.S. drilling and production is not enough to rebalance even the U.S. market, let alone the global market,” Citi Futures Perspective analyst Tim Evans told Bloomberg in an interview. “How much do you really want to pay for the next million barrels of inventory you don’t need?”

Natural gas prices are also crashing, dropping to their lowest levels since 2012. NYMEX prices dropped by nearly 10 percent on October 26 alone, dipping below $2.10 per million Btu. That was the largest decline in a single day in almost two years. During intraday trading on October 27, natural gas prices fell below $2/MMBtu, a threshold not breached in over two and a half years. Related: U.S. Oil Imports On The Rise Once More

The sudden collapse in natural gas prices stems from the record production of natural gas in 2014 and 2015. Natural gas inventories now stand 4.5 percent above the five-year average. The latest catalyst, however, was forecasts for mild temperatures expected across the U.S. in the next few weeks, raising the possibility of much lower demand than anticipated. An El Nino weather pattern could cut into heating demand this winter. Low natural gas prices will compound the headaches for E&P companies already reeling from low oil prices.

Meanwhile, China’s central bank slashed interest rates once again, an unexpected move that buoyed emerging markets. The Shanghai Composite rose to its highest level in two months, following a volatile summer meltdown that spread worldwide concerns about the stability of global financial markets. On the heels of the U.S. Federal Reserve’s decision to postpone a rate hike in September, the rate cut in China has provided further stimulus to emerging market equities. Crude markets welcome loose monetary policy, particularly from the world’s two largest oil importers.

By Evan Kelly of Oilprice.com

More Top Reads From Oilprice.com:

Download The Free Oilprice App Today

Back to homepage

Leave a comment
  • SortingHat on October 28 2015 said:
    As long as our Oh Bama economy *and his followers* continue to be sick the prices will be low because there is little to no demand due to little to no industry existing.

    The only reason we haven't had the big crash is China props us up because she knows any crash will effect her as well since her people are mostly poor unless your part of the Communist Party or tourists. Their actual people can't afford much and are told where and how to live.

    Remember when they spent BILLIONS of dollars in the *ghost* cities that nobody can afford to live in?

Leave a comment

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