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Has The Big Oil Fire Sale Started?

The world’s largest sovereign wealth…

This Week in Energy: The Oil Price Panic

This Week in Energy: The Oil Price Panic

American drillers are fretting over an oil boom that is out-pacing demand and pushing prices down, feeding the export ban debate and pushing it critically forward.

This week, while Bloomberg reports that domestic fields will add “an unprecedented 1.1 million barrels a day of output,” while consumption is expected to shrink to its lowest level since 2012, the New York Times insists that a crude oil tanker that left Texas in late July, bound for South Korea, is a sign of the changing times.

The tanker, Singapore-flagged and leaving quietly from the port in Galveston, Texas, was carrying 400,000 barrels of crude oil and was apparently the first “unrestricted export of American oil to a country outside of North America in nearly four decades.”

The two stories are certainly related—even if there is a months-long gap in the timing. West Texas Intermediate crude, the US benchmark, is down 24% since mid-June, and on 2 October, it fell below $90 per barrel for the first time in 17 months.

Drillers are panicking over the specter of declining operating capital, and being able to export crude is the only outlet if oil prices continue to fall, while demand weakens.

”If prices go to $80 or lower, which I think is possible, then we are going to see a reduction in drilling activity,” Bloomberg quoted Ralph Eads, vice chairman and global head of energy investment banking at Jefferies LLC, as saying. “It will be uncharted territory.”

Ben van Beurden, CEO of Shell, isn’t buying into the panic, however. He says he is confident that oil will return to “very robust” pricing in the long-term.

Others are banking on a particularly harsh winter, supply cuts from OPEC countries, and continued geopolitical volatility in the Middle East and North Africa to bring oil prices back towards $100 a barrel.

For those not eyeing the prospects of freezing and conflict, though, exports are the saving grace.

And as the Wall Street Journal reports, “the share-price boom at U.S. energy firms has gone bust, due to slumping global growth and tumbling crude prices.”

Rex Tillerson, ExxonMobil’s CEO, says the ban on exports of US crude oil—which grew out of the oil shortages suffered by the United States in the 1970s--is no longer necessary.

The export of oil to South Korea “symbolizes a new era in US energy and US energy relations with the rest of the world,” NYT quoted energy historian Daniel Yergin as saying.

Under the ban of crude exports, refineries benefit from the processing largesse, but there is growing support to lift this ban in a changing world—and in light of the shale revolution, which has led to an increase in drilling by around 70% over the past six year.

While supporters of the ban say that crude exports could lead to a rise in gasoline prices and heating costs, critics of the ban say it would help stabilize oil prices.

The next word on the issue will come in about a month, when the Energy Information Administration (EIA) releases a much-anticipated report on the potential impact of lifting the ban. It won’t be the final word, but it is expected to determine the shape of this debate and to significantly influence its outcome at a time when oil prices are tumbling and confidence of a rebound is shaky.

Note: This week’s Premium is a must read for energy investors. Dan Dicker looks at the current panic in the oil markets and why as a trader this produces huge opportunities for the bold. He mentions two stocks hammered along with virtually every other energy company, with little respect for their particular portfolios and balance sheets. Martin takes a look at European oil companies, Jim looks at the chart action for crude, natural gas and also Exxon and our analysts look at other opportunities falling oil prices offer investors. Click here to read it today and receive the next 4 weeks research for free.

By. James Stafford of Oilprice.com




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