• 2 hours UK Offers North Sea Oil Producers Tax Relief To Boost Investment
  • 4 hours Iraq Wants To Build Gas Pipeline To Kuwait In Blow To Shell
  • 6 hours Trader Trafigura Raises Share Of Oil Purchases From State Firms
  • 7 hours German Energy Group Uniper Rejects $9B Finnish Takeover Bid
  • 9 hours Total Could Lose Big If It Pulls Out Of South Pars Deal
  • 11 hours Dakota Watchdog Warns It Could Revoke Keystone XL Approval
  • 1 day Oil Prices Rise After API Reports Major Crude Draw
  • 1 day Citgo President And 5 VPs Arrested On Embezzlement Charges
  • 1 day Gazprom Speaks Out Against OPEC Production Cut Extension
  • 1 day Statoil Looks To Lighter Oil To Boost Profitability
  • 1 day Oil Billionaire Becomes Wind Energy’s Top Influencer
  • 1 day Transneft Warns Urals Oil Quality Reaching Critical Levels
  • 1 day Whitefish Energy Suspends Work In Puerto Rico
  • 1 day U.S. Authorities Arrest Two On Major Energy Corruption Scheme
  • 2 days Thanksgiving Gas Prices At 3-Year High
  • 2 days Iraq’s Giant Majnoon Oilfield Attracts Attention Of Supermajors
  • 2 days South Iraq Oil Exports Close To Record High To Offset Kirkuk Drop
  • 2 days Iraqi Forces Find Mass Graves In Oil Wells Near Kirkuk
  • 2 days Chevron Joint Venture Signs $1.7B Oil, Gas Deal In Nigeria
  • 2 days Iraq Steps In To Offset Falling Venezuela Oil Production
  • 2 days ConocoPhillips Sets Price Ceiling For New Projects
  • 5 days Shell Oil Trading Head Steps Down After 29 Years
  • 5 days Higher Oil Prices Reduce North American Oil Bankruptcies
  • 5 days Statoil To Boost Exploration Drilling Offshore Norway In 2018
  • 5 days $1.6 Billion Canadian-US Hydropower Project Approved
  • 5 days Venezuela Officially In Default
  • 5 days Iran Prepares To Export LNG To Boost Trade Relations
  • 5 days Keystone Pipeline Leaks 5,000 Barrels Into Farmland
  • 6 days Saudi Oil Minister: Markets Will Not Rebalance By March
  • 6 days Obscure Dutch Firm Wins Venezuelan Oil Block As Debt Tensions Mount
  • 6 days Rosneft Announces Completion Of World’s Longest Well
  • 6 days Ecuador Won’t Ask Exemption From OPEC Oil Production Cuts
  • 6 days Norway’s $1 Trillion Wealth Fund Proposes To Ditch Oil Stocks
  • 6 days Ecuador Seeks To Clear Schlumberger Debt By End-November
  • 6 days Santos Admits It Rejected $7.2B Takeover Bid
  • 7 days U.S. Senate Panel Votes To Open Alaskan Refuge To Drilling
  • 7 days Africa’s Richest Woman Fired From Sonangol
  • 7 days Oil And Gas M&A Deal Appetite Highest Since 2013
  • 7 days Russian Hackers Target British Energy Industry
  • 7 days Venezuela Signs $3.15B Debt Restructuring Deal With Russia
Alt Text

Has The Big Oil Fire Sale Started?

The world’s largest sovereign wealth…

Alt Text

Short Bets On Oil Spike Ahead Of OPEC Meeting

Short positions in Brent futures…

Alt Text

Oil Prices Nosedive On Bearish IEA Report

Oil prices are cratering after…

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 the Oil Price Slide Nearing an End?

Is the Oil Price Slide Nearing an End?

The rapid decline in oil prices may be almost over.

That prediction comes from several big banks that say oil prices are nearing their floor. Bank of America and BNP Paribas see $80 as a floor price and argue there is a high likelihood Brent oil will not crash through that key threshold.

Global supplies are strong and demand remains relatively tepid, so why would oil prices suddenly stop dropping when they reach $80 per barrel? There are several built in stabilizers that could act to support prices.

First, high cost production could begin to go offline when prices drop to that point. $80 a barrel is where some of the world’s most expensive oil starts to become unprofitable. With high cost producers knocked out of the market, supplies tighten and prices rise.

Related: World’s Most Expensive Oil Project Just Got More Costly

However, there would be a lag effect for this, as it is likely that drillers would keep pumping at wells that are already completed, and just put off plans for new drilling projects. So production would not necessarily decline immediately, but would drop over a period of time as wells deplete and no new wells come online to replace that lost production.

A second reason for the $80 floor price is related to the global economy. With oil prices now about 30 percent lower than their peak in June 2014, fuel costs for consumers around the world are going down. That acts as an enormous stimulus. For every $20 decline in the price of a barrel of oil, U.S. GDP increases by 0.4 percent. Put another way, American drivers save around $120 per year for every 10-cent drop in the price of gallon of gasoline.

And with a jolt to consumer economies, demand could begin to come back and push up oil prices. “You have to believe there’s a cyclical rebound coming in the next three months,” Francisco Blanch, a top commodities researcher at Bank of America, said in an interview with Bloomberg. “A lot of emerging economies are going to benefit from a strong dollar, strong U.S. economy and lower energy prices. The drop in prices will be pretty stimulating for demand.”

Citigroup estimates that lower oil prices are going to pump $1.1 trillion into the global economy. That’s because consumers are not only saving at the pump, but also because lower oil prices will trickle down to affect many other consumer products.

“A reduction in oil prices also results in a reduction in prices across commodities, starting with natural gas, but also including copper, steel, and agriculture,” Ed Morse, Citigroup’s head of commodities research, told Bloomberg. “All commodities are energy intensive to one degree or another.”

Related: 2014 May Be A Crucial Year For Iranian Oil

But most important for the short-term swing in prices is what OPEC does next. OPEC is set to meet on Nov. 27, unless it responds to Venezuela’s plea for an emergency meeting. Saudi Arabia, the only country that really matters when it comes to changes in short-term supply, has shown a willingness to tolerate lower prices to maintain market share.

However, according to Reuters, Saudi Arabia is reportedly eyeing prices of around $80 per barrel as an acceptable level. Should prices drop well below that figure, the calculations could change in Riyadh, prompting a reevaluation of Saudi production levels. They could act in November to cut back on production in order to stop the slide. Already, one billionaire Saudi prince has written a letter to Saudi Oil Minister Ali Al-Naimi warns of a “catastrophe” if oil prices slide too far.

That means these combined forces could halt oil’s slide at around $80 per barrel. And with Brent trading around $83 on Oct. 15, we are zeroing in on that crucial price point. BNP Paribas sees oil prices rebounding to $95 per barrel by the end of the year.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




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