Oil Prices Fall to Lowest Since 2009
By: Clifford Krauss (NY Times) January 2015
HOUSTON — Oil prices took another sharp turn downward on Monday to levels not seen since the depths of the 2009 recession. Several international banks predicted even lower prices later this year because of an oversupplied global crude market.
The latest daily downward spiral of more than 5 percent has brought several crude oil benchmarks down by more than 55 percent since June in one of the fastest drops ever for the volatile commodity.
The drop came even as Venezuela and Iran coordinated their efforts to persuade OPEC to cut production; Canadian Natural Resources, a major global producer, announced deep investment cuts; and American companies dropped their rig drilling count at quickening speed.
The day’s plunge began after Goldman Sachs released a bearish oil report Sunday night predicting that the American price benchmark, which dropped to about $46 a barrel on Monday, would fall to $41 in three months and $39 in six months — before recovering to $65 by the end of the year.
“We believe this bear market will likely be characterized by more of a U-shaped recovery in which markets take longer to recover,” the Goldman Sachs report said, “and will likely rebound to far lower prices from where they sold off from.”
Drivers continue to enjoy the benefits of the oil price drop. The average price for a gallon of regular gasoline on Monday was $2.13, according to the AAA auto club, 7 cents lower than a week ago, 47 cents lower than a month ago and $1.17 below a year ago. The club said that 18 states now had average gas prices that were under $2 a gallon and that “this number could rise to 25 by the end of next week given current trends.”
Oil analysts say the 93-million-barrel-a-day global oil market has a supply surplus of one million to two million barrels, and that surplus is not going away soon.
American production, which has grown by more than a million barrels a day in each of the last three years because of a frenzy of shale drilling in North Dakota and Texas, is still growing, though at a slower rate. The United States onshore rig count, according to the Baker Hughes oil service company, dropped by 60 rigs the second week of January, but the count still remains little changed from a year ago since rigs are typically rented on multiyear contracts.
Elsewhere, production and exports are still growing in several countries, most notably Iraq.
Slowing economic growth in Europe and parts of the developing world is curbing demand. And as the Goldman Sachs report noted, a decade of investments in global land storage and tankers means that producers can keep producing oil to keep up their revenue without running out of room to store their excess crude oil output.
But oil experts say a long-term price at current levels could substantially sidetrack the American oil industry, or at least cause intense financial pain to many smaller companies that have borrowed heavily to drill in areas outside the most productive shale rocks.
“The pain limit for U.S. shale drillers was reached when U.S. oil prices dropped below $50 a barrel,” said Per Magnus Nysveen, head of analysis for Rystad Energy, a Norwegian-based global consultancy.
In a paper released on Monday, Mr. Nysveen noted that oil companies in the United States had begun this year for the first time to decommission horizontal drilling rigs capable of probing through dense shale rocks in the Bakken field in North Dakota and the Eagle Ford and Permian Basin fields in Texas. Those three fields have represented the backbone of American oil production renaissance in recent years.
