Tuesday January 13, 2009

NYMEX crude oil prices fall below $40 as demand drops faster than supply

bloomberg.com :

Crude oil prices fell below $40 per barrel on NYMEX on concern OPEC production cuts will fail to counter a slump in demand. Oil consumption will drop by 1 million barrels a day this year as the US, Europe and Japan face their first simultaneous recessions since World War 2, Deutsche Bank said. Most commodities fell today [12 Jan 2009] because of lower demand for raw materials. Crude oil for Feb 2009 delivery fell $3.24 to $37.59 a barrel at 2:43 p.m. on NYMEX. Oil is down 59% from a year ago. Oil prices also fell on speculation that Russia's Gazprom will resume natural gas shipments to Europe.

OPEC agreed last month to cut production by 9% to revive prices as the global recession erodes demand. Oil has plunged more than $100 per barrel in the past 6 months. OPEC may trim production further should crude oil prices continue to decline, Iran's OPEC governor, Mohammad Ali Khatabi, said yesterday. OPEC is scheduled to meet next in Vienna on 15 Mar 2009. Meanwhile, the contango situation continues as crude oil for Mar 2009 delivery is at a more-than $6 premium to the front-month contract, and Dec 2009 futures are more than $19 above supplies for Feb 2009 delivery.

- So now we're back to 2004 oil prices. But there isn't really much new here as the global economic collapse and demand destruction story continues to grab headlines and worldwide attention. The only possibly new thing is the contango situation which is interesting as some of the oil companies are starting to hire supertankers to store crude oil so as to try to earn some quick bucks when delivering into the later month contracts.

Of course, with 25 such supertankers booked, and traders reportedly looking for at least another 10 or more, that leads to increased inventory levels which would only add to the downward pressure on crude oil prices. At 2 million barrels per supertanker, we're looking at 50 million barrels already dedicated to this task of sitting around and doing nothing, and we're probably looking at another 20 million barrels more. Unless and until we get a supply shock of some sort, that will tend to pull down the contango levels, which kind of resembles what the Federal Reserve seems to be trying to do with the yield curve on the bond side of things.

See also :

1. Peak Oil : IEA reports global depletion rate could go up to 9.1%, struggle to produce crude oil
2. Global credit crisis slows food and energy shipments, may lead to shortages
3. NYMEX crude oil falls more than $100 from Jul 2008 record on US recession, OPEC production cut delay
4. NYMEX crude oil recovers from $32.40 low after 2.2 mbpd OPEC production cut announced
5. NYMEX crude oil prices rebound above $50 on OPEC cuts, Russia gas dispute, Middle East conflict

(2009-01-13 15:05:27 SGT) [Energy] Permalink

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