Crude oil prices tumbled to their lowest levels in more than a year on news that Saudi Arabia lowered the official selling prices for its crude oil, which would suggest the Saudis may not reduce output in the coming months to keep prices high.
Brent crude fell 0.5% to $94.16/bbl, the lowest settlement since June 28, 2012, while WTI crude for November delivery also fell 0.5% to $90.73, its lowest price since April 23, 2013.
Saudi Arabia cut its November oil prices, Reuters reports, marking the fourth straight month of price cuts, indicating it is more focused on maintaining market share in a lower-price environment than on keeping prices high.
The kingdom did reduce output in August, but analysts say more drastic cuts would be needed to rebalance the market, as North American production soars and Libyan exports continue to grow.
Plants typically schedule maintenance in September and October when units move from maximizing gasoline output to producing winter fuels.
Examples: Maintenance has begun at Total’s (NYSE:TOT) 225K bbl/day Port Arthur, Tex., refinery, Phillips 66’s (NYSE:PSX) Lake Charles refinery is conducting planned maintenance, and Motiva Enterprises' Norco, La., refinery began planned work this week.
It was the second month in a row that exports were the highest since March 1957, according to EIA data going back to 1920.
Most of July's crude-oil exports (373K bbl/day) went to Canada, while 14K bbl/day were exported to Italy, 12K went to Switzerland and 3K to Singapore; the exports to Italy, Switzerland and Singapore were shipments of foreign oil that had previously been imported to the U.S.
U.S. oil imports have fallen as domestic production has climbed: The U.S. imported 7.6M bbl/day of crude oil in July, down from 8.1M a year ago, the EIA says.
The U.S. is set to become the world’s largest producer of liquid petroleum, with output likely to exceed Saudi Arabia’s this month or next for the first time since 1991.
U.S. production of oil and related liquids such as ethane and propane was level with Saudi Arabia in June and again in August at about 11.5M barrels a day, according to the International Energy Agency.
U.S. crude oil production in August was still lower than both Saudi Arabia and Russia, but overall U.S. leadership in petroleum is accounted for by its higher production of natural gas liquids such as ethane and propane.
The average in Springfield, Mo., already is below $3, and oil analyst Tom Kloza believes "there will be more, many more" - but not in high-priced states such as California and New York, which likely will keep the overall U.S. average above $3.
Falling pump prices have been temporarily halted, as wholesale gasoline prices are rising as refineries in eastern Canada and Texas have been forced to shut units for unplanned repairs at a time when other plants are conducting seasonal maintenance.
But prices should be headed back down sometime in October, and gasoline had a head start this year as prices entered September at their lowest level for the beginning of the month in four years.
The falling prices could be made worse by new drilling technology that may double recovery rates and add an additional 1.5M-3M bbl/day of new oil production - as much as 25% more oil than is expected today - the report says.
The report is not specific about the kinds of technologies that could draw more oil from the ground, but it cites companies such as EOG Resources (NYSE:EOG) that in the early phase of testing new methods now.
Commodity prices as measured by the Total Return Bloomberg Commodities Index reaches new five-year lows, hit by a strengthening dollar, the prospect of a record grain harvest in the U.S. and concerns over weakening economic growth in China.
The index has dropped more than 12% since the end of June amid falling prices for commodities such as crude oil, soybeans and gold.
Even industrial metals, one of this year’s best performers in commodities, have started to come under pressure; nickel has dropped 10% since the end of June, copper prices are at three-month lows, and iron ore trades below $80/ton for the first time since 2009.
Condensate exports from the U.S. are continuing for the third straight month, following the easing of a 40-year crude export ban in June.
As U.S. condensate supply continues to surge due to the shale boom, oil producers are looking to export a growing surplus, while consumers, such as refiners, have lobbied to keep exports forbidden to ensure lower energy costs in the U.S.
Washington has still held back on issuing more permits to export the minimally refined oil, despite growing international pressure to soften the ban,
The IEA now foresees global oil demand growth of 900K bbl/day in 2014, a decrease of 65K bbl/day vs. last month's forecast and down by 300K bbl/day since July.
Oil demand growth in Q2 was at its lowest in two and a half years due to economic weakness in Europe and China, a trend the IEA expects will continue to hurt demand; the agency now expects oil demand to rise by 1.2M bbl/day next year, but that's 100K bbl/day less than it forecast last month.
Saudi Arabia finally appears to be responding to the lower demand outlook, as it cut its oil output by 330K bbl/day last month and appears to have run below 7M bbl/day for the last four months, its lowest level since Sept. 2011.
Energy stocks, especially refiners, are taking a beating following the latest EIA inventory report that said gasoline stockpiles rose by 2.4M barrels last week, helping send U.S. crude oil futures to 16-month lows (-1.2% to $91.61/bbl) and Brent crude to 17-month lows (-1.1% to $98.02).
The report is bearish given the large increases in refined product inventories; "even though the crude drawdown was close to expectations, it seemed to disappoint," Again Capital's John Kilduff says.
The EIA report followed the agency’s updated demand growth report issued yesterday and this morning’s release of OPEC’s report on the oil market; both see lower demand growth this year and next.
Oil majors are mostly lower: XOM -0.6%, CVX -1.4%, COP -0.3%, but BP (+2.9%) and RDS.A (+1%) are higher.
OPEC's latest monthly report adds to the bearish outlook for crude oil, as it cuts forecasts for the amount of crude it will need to supply as surging North American shale output reduces reliance on its supplies.
OPEC now expects it will need to pump an average of 29.2M bbl/day of crude next year, 200K bbl/day less than it forecast just a month ago.
OPEC could respond by restricting oil supply to keep prices up in the face of weakened demand, but there's no sign of that happening; output actually rose by 231K bbl/day in August, thanks in part to the reopening of some Libyan oil fields.
Production has resumed at Britain's North Sea Buzzard oil field, according to field operator Nexen (NYSE:CEO), the latest phase of the on-again off-again return of one of the key streams underpinning Brent oil futures.
Since returning from summer maintenance in late August, the 200K bbl/day field has gone through several shutdowns and restarts.
Brent crude dropped $1.12, or 1.1%, to $99.70/bbl after falling to as low as $99.36, a 16-month low, while U.S. crude slipped more than a percent to below $92 after settling at $93.29 on Friday for its sixth weekly drop in seven.
Traders are concerned crude demand won't keep up, with data from the U.S. and China, the world's top oil consumers, suggesting their economies aren't growing as quickly as had been hoped.
: Yep, liquidation of debt the only risk, and central banks have shown their hands.
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