With WTI crude oil trading between $83.59 and $86.29 per barrel on Friday, questions about a bear market for commodity prices linger. This morning, Oil & Gas 360® talked to the Baird energy research team about ramifications from this week’s oil price slide.
“Our view is you’re not going to see reductions in activity, capital budgets or drilling programs [at today’s levels]; it’s fairly well hedged for the next few months. All the basins make sense at $80 oil. If it fell to low to mid $70s for a prolonged period, that’s when you’re likely to see producers reconsidering their longer term drilling programs—that’s when people will start rethinking their plans. Breakeven points for the major basins are still below that. Major oil basins like the Permian, Bakken and Eagle Ford are economic at $75,” according to Baird energy research team members in Denver.
Brent traded Friday at $88.11 a barrel in London, the lowest level since December 2010, Bloomberg reported. “The price slump is adding to pressure on Russian assets hurt by sanctions over the conflict in Ukraine. Russia derives about half its budget revenue from oil and natural-gas sales.”
“Trading in options contracts shows a 25 percent chance that West Texas Intermediate crude futures will settle below $77.50 a barrel in mid-December, up from 3 percent at the end of September,” Bloomberg reported.
OPEC released its Monthly Oil Market Report today, reporting that its members increased oil production by 0.40 MMBOPD in September to 30.47 MMBOPD overall, which was the biggest monthly increase in production since November 2011.
“Saudi Arabia and Iran, both OPEC members, are discounting their main crude export grades to Asian buyers by the most in almost six years, prompting speculation that some OPEC nations are competing for market share,” Bloomberg said.
The U.S. Energy Information Administration released its Short Term Energy and Winter Fuels Outlook this week in which the agency predicts total U.S. crude oil production will increase to 8.5 MMBOPD in 2014, up from 7.4 MMBOPD in 2013. The EIA forecasts total U.S. crude oil production will be 9.5 MBBOPD in 2015.
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