There has been increasing speculation over the last twenty-four hours that the oil price might start to rally upwards.“
What we are seeing now is improvement, suggesting a recovery within the longer term downtrend … I’m short-term bullish on Brent,” Roelof van den Akker, a chartist at ING Wholesale Banking, told CNBC earlier today. Van den Akker is predicting that the oil price could jump $20 / barrel in the near future.
He is not the only one who is thinking that the oil price is set to rebound. The Financial Times is reporting that hedge funds are also placing some of their “largest ever bets on a rally in oil prices”.
But the FT adds that this comes “just as evidence mounts that energy companies are hunkering down for a delayed recovery.”
Part of what this “hunkering down” might look like was outlined by one industry executive on Wednesday.
The executive, Rob Fulks, a marketing director at fracking company Weatherford, predicted that half of the 41 fracking companies operating in the U.S “will be dead or sold” by the end of this year due to slashed spending by oil companies caused by the oil price plunge.
Fulks, whose company is the fifth largest fracker in the US, was speaking at an industry conference in Houston on Wednesday. He predicted there could be as little as 20 fracking companies left by the year end, compared to the 41 there are currently and 61 there were at the beginning of last year.
The cuts are part of the $100 billion the industry has cut in spending globally after prices have plummeted.
He told the audience that “we see yards are locked up and the doors are closed”, adding “it’s not good for equipment to park anything, whether it’s an airplane, a frack pump or a car.”
As far as his own company is concerned, Fulks said that Weatherford was making “dramatic” cuts to expenditure.
Many in the industry, like Fulks, will be hoping that the hedge funds are right and that the oil price rebounds sooner rather than later.
But whether it happens before more fracking companies go bust or are taken over, remains to be seen.
Repost from Oil Change International [Editor: Significant quote: “Put simply the oil boom has not insulated American consumers from the price spike that the violence in Iraq will cause. And Iraq is not the only major oil producer with ongoing political instability. Think about recent events in Nigeria, Venezuela and Libya, to name just three.” – RS]
US “Not Immune” to Oil Price Hike
Andy Rowell, June 16, 2014
For years the American oil industry has argued that the ongoing U.S. oil boom will bring about “energy independence” and drive gasoline prices down. Americans are supposed to be enjoying an era of cheap, plentiful energy.
As the oil industry has set about fracking America, decades of declining production has been reversed in just a handful of years. The US is now the world’s largest producer of oil and gas.
The oil industry has persuaded or forced communities across North America to compromise their water supplies and their health to allow the fracking revolution with the promise of lower prices and energy security.
So American consumers should apparently be appreciating the impact of the country’s shale revolution as crude oil and condensates production has just surpassed its previous peak, reached way back in 1970. A 44-year old record has just been broken.
Not so. As the Energy Policy Information Centre pointed out, at the end of last month. “Despite all the promise of the oil boom, for most Americans, its economic benefits remain an abstract concept in the absence of relief at the gas station.”
The sad truth is that despite the US economy being half as “oil intense” compared to the 1970s – as measured by barrels of oil consumed per $1,000 of GDP – American households and businesses still spend a staggering 900 billion dollars annually on petroleum. The average American household dedicates around 5.3% of its spending to petroleum, with the burden felt much more heavily by low income households.
And here comes the real irony. Despite the US reaching a record production peak, last week the price of Brent crude rose 4 per cent, its biggest one-week rise since July last year. Wholesale US gasoline rose with it and thus US consumers will notice higher pump prices probably as soon as this week (see chart).
Source: Financial Times
And the reason is the ongoing turmoil in Iraq. The escalating violence there is threatening supplies from OPEC’s second largest producer, which produces in excess of 3 million barrels of oil a day.
Bloomberg is quoting Societe Generale saying that if the violence escalates and production is affected, Brent crude may jump from its current position of $113 to $120 or even $125. It may go even higher.
“This is a serious situation in terms of the global oil market,” Victor Shum, a vice president at IHS Energy Insight in Singapore, told Bloomberg. “This situation in Iraq really threatens potential supply growth going forward.”
So far the fighting has not spread to the south, where the US Energy Information Administration estimates that three-quarters of Iraq’s crude output is produced. But if the Southern oil fields fall, the global oil price could skyrocket to unprecedented levels.
What this shows, as Ed Crooks, points out in today’s Financial Times is that, despite its own fracking revolution, “the US is not immune to the effects of disruption in world markets.”
Put simply the oil boom has not insulated American consumers from the price spike that the violence in Iraq will cause. And Iraq is not the only major oil producer with ongoing political instability. Think about recent events in Nigeria, Venezuela and Libya, to name just three.
The boom that is needed in order to truly insulate the American economy from the relentless turmoil in oil producing countries is a boom in efficiency, public transit, smart growth and electric vehicles. These technologies and policy initiatives are here now and ready to go, but the political and financial weight behind them has been overshadowed by the lure of oil boom riches.
Instead of “All of the Above“, we need energy policies that will help American’s reduce the amount of oil they need to buy, at any price.