The stock market posted its second straight day of sizable losses on Tuesday, and the oil market was not spared from the bullish trading. West Texas Intermediate (WTI) for November delivery closed at $88.85, a 17-month low, on October 7, 2014. The closing was $1.49, or 1.7% lower than the opening on the same day of trading.
Brent prices dropped to $91.72 per barrel, a 28-month low. OPEC recently announced its highest flow rates since 2012 due to more supply from Libya and Saudi Arabia – the latter of which has refused to slow down its production and opted to slash its prices instead.
EIA Cuts back on Forecasts
The Energy Information Administration projects oil production growth to continue and dialed back on price forecasts in its Short Term Energy Outlook for October 2014. WTI futures for 2015 were reduced by $0.09 and the price for Brent was reduced by $1.33, or 1.3%, to $101.67. Total United States crude production for 2015 is projected to reach 9.5 MMBOPD – 11% above 2014’s projection of 8.54 MMBOPD, according to Bloomberg.
Gene Epstein of Barron’s predicted back in March that oil prices would dip to as low as $75 per barrel. The recent performance of the dollar will not help matters – the dollar spot price has increased $5.86, or 7%, since June 30, 2014, to close at $85.65 in the most recent day of trading.
“Research shows that costs track oil prices and not the other way around,” said Amy Jaffe, Executive Director for Energy at the University of California Davis, said in the Barron’s article. “As oil prices move lower, demand for drilling rigs and related equipment falls, lowering the cost of drilling.”
Export Discussions will Only Get Hotter
The Chief Executive Officer of Exxon Mobil (ticker: XOM), the world’s largest E&P, spoke out last week in favor of lifting the crude oil export ban. The encouragement from the supermajor is a unique step in the debate, considering XOM has operations globally and lifting the ban would have little effect of the company’s balance sheets.
Rex Tillerson, CEO of Exxon Mobil, said: “In the current debates about LNG and crude oil exports, economists and leaders from across the political spectrum, from all sides, agree that free trade would lead to increased investment, more jobs and, importantly, increased production.”
The increased production could be shipped overseas to capitalize on several impending production strains, namely the volatility of select OPEC members and the sanctions enforced on Russia.
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