NEW YORK-Oil prices fell Monday on concerns about weakening Chinese growth and continued growth in global production. “Both cycles were driven by large increases in supply and while there was a few slowdown in demand, demand did not contract” said Goldman Sachs.
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Bond yields rose on the prospect of higher US interest rates, after the Federal Reserve left the door open last week to a first increase since 2006 in December.
Because Saudi Arabia and OPEC have opted to maintain or even slightly increase their oil output, the adjustment process shouldn’t take as long as the one that stretched from 1986 into the early 1990s.
Global oil prices are a different beast all together. “We see a risky complacency regarding the ongoing physical surplus”. By the end of 1985, oil and gas producers had already suffered from a steady decline in oil prices over the previous five years, shrinking equity valuations. By January of 2009, Venezuela’s oil basket had fallen to a low of $27.10 a barrel. This can only drive prices further downward.
The drops are not indicative of deliberate supply cuts to prop up prices, sources in the survey said, and the Organization of the Petroleum Exporting Countries is still pumping close to a record high as major producers focus on defending market share. Meanwhile, Brent crude is down 1.1% at $49 per barrel.
The minister said fix of oil wells and preparation of pipelines and oil pump stations is rapidly underway for the goal. The earnings of BP have reduced by 40 percent as a result of the oil prices, which have been at the lowest since 2009. “The oil consumers are generally getting a boost”, said Jan Hatzius, the chief economist at Goldman Sachs.
This history lesson demonstrates that energy stocks can achieve solid returns during periods of declining oil prices, provided that WTI prices find a bottom and stock valuations reset to levels that set a low bar of expectations. More Americans, starting with those in oil-producing states, must rally behind this policy change and urge USA senators to vote to “can the ban” and urge President Obama to sign a bill when it reaches his desk.
However a further price collapse would drop investments in oil projects and prompt thousands of job losses in the sector.
Meanwhile, Chevron anticipates reducing its employee workforce by 6,000 to 7,000. At the same time, Rosneft, one of the largest energy companies in Russian Federation in terms of overall production, reported a 1.1% decline in October over the last 12 months. In spite of the slide, Texas Long Sweet futures are still up by more than 3.3% over the last month.
U.S oil companies have disclosed more than 72,000 job cuts in 2015.
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Depressed commodity prices and financing constraints will encourage more companies to merge or sell off assets to strengthen their balance sheets.
