Eddie Button, president of Button Oil Co., in Mountain Top, said the prices are as low as they have been about a decade.
“[On the supply side] there is going to be a significant reduction in production in North America as producers in the USA and Canada are facing a liquidity crisis, but at the same time you are going to see strong production in OPEC“.
The predictive significance of oil prices is indeed impressive, but only as a contrary indicator: Falling oil prices have never correctly predicted an economic downturn. Given all that, Butler reckons (barring politically-motivated intervention, by the Saudis, say) there won’t be a cyclical turn towards higher prices for “at least five years“.
Between the spring of 2011 and the summer of 2014, prices were unusually steady, mostly trading within about ten dollars of the $110 mark, a level that came to be seen as the new normal.
“U.S. nonfarm payrolls turned out weaker than expected, causing oil prices to fall on anticipations of a weaker economy”, Singapore’s Phillip Futures said in a note on Monday. Now a price of half that looks like it could be the new normal for the foreseeable future. Many heating oil dealers are offering delivered prices below $2 per gallon.
Because oil consumers generally spend extra income fairly quickly, while governments (which collect the bulk of global oil revenues) usually maintain public spending by borrowing or running down reserves, the net effect of lower oil prices has always been positive for global growth.
Crude production from Saudi Arabia is likely to stay around current levels in the fourth quarter of this year as a decline in domestic crude burning for power generation is expected to be offset by a seasonal rise in global demand.
Oil prices seem to be dropping, with no end in sight. The Iran nuclear deal refuted the widespread but naive assumption that geopolitics can drive oil prices in only one direction.
Good news coming from Russian Federation and Venezuela?
Heating oil customers stand to save big this heating season as futures for the fuel dropped significantly and show no signs of heading back up.
Crude production is a capital-intensive undertaking, as well as being highly dependent upon massive amounts of debt-sourced financing. With Iran looking to supply more to the market, disharmony within Opec, greater efficiency from shale producers and not to forget the constant moving spectrum of geopolitical risk, the rollercoaster ride for commodities and oil in particular is likely to continue.
Instead, according to an estimate from Platts, output from the nation has increased to about 10.45 million barrels per day in July from 10.1 million in April.
Saudi Arabia is the largest member of OPEC and the only producer that can truly curtail production (the other members ALWAYS cheat).
“Asian demand continues to be the main driver of global crude oil trade, as majority of refinery capacity additions are taking place in this region”, said Rajesh Verma, a Delhi-based analyst with Drewry Shipping Consultants Ltd. “Despite economic slowdown in China, the country’s oil imports are strong as it is importing oil to fill its strategic petroleum reserve”. No producing country is willing to reduce its output, he said.
To date, oil companies have deferred more than $200 million in investments because of the oil-price crash, according to a report by Wood Mackenzie.