Crude oil falls below $50. Lowest since May 2009

Brent oil, a global benchmark for crude oil prices, plunged to $49.92 a barrel on Wednesday. According to Reuters, this is the lowest since May 2009.

The news agency, citing analysts, said that the oil is falling due to an excessively abundant supply and weak global economy, and the prices are yet to reach bottom.

The global crude price drop, while bad for the global oil and gas industry and its supply chain companies, could be good news for consumers.

George Osborne, UK’s Chancellor of the Exchequer & MP for Tatton tweeted yesterday: “Oil price was $53 pbl last night – lowest in 5yrs. Vital this is passed on to families at petrol pumps, through utility bills and air fares.”

EIA Report

Energy Information administration yesterday issued a report for the 4Q 2014 oil prices titled: “Crude oil prices down sharply in fourth quarter of 2014”

EIA wrote that crude oil prices fell sharply in the fourth quarter of 2014 as robust global production exceeded demand. After reaching monthly peaks of $112 per barrel (bbl) and $105/bbl in June, crude oil benchmarks Brent and West Texas Intermediate (WTI) fell to $62/bbl and $59/bbl in December, respectively.

Brent prices fell below the five-year average in early September and slipped well below the five-year range in November and December. WTI prices have been below the five-year average since early October and below the five year-range since early November.

Crude oil prices fell sharply in the fourth quarter of 2014

Petrobras’ pre-salt still viable

Responding to reports that with the declining oil prices, its offshore Brazil projects in the pre-salt areas are under a threat, Brazil’s national oil company Petrobras says it expanding its oil and natural gas production capacity in the Brazilian pre-salt layer in an economically viable manner.

In a statement issued last night, Petrobras said that the break-even price (the minimum oil price at which production is economically viable) planned at the moment when its pre-salt production projects were approved was around US$45 per barrel, including taxes and not including natural gas transportation infrastructure spending. Inclusion of the latter spending may raise the total figure by US$5 to US$7 per barrel.

North Sea in danger?

With oil now below $50, it’s worth recalling a statement by Robin Allan, chairman of the independent explorers’ association Brindex, given to the BBC in December 2014. He said that almost no new projects in the North Sea are profitable with oil below $60 a barrel.

“It’s almost impossible to make money at these oil prices”, Allan told the BBC. “It’s a huge crisis.”

Oil at $20?

If the industry is in danger of collapsing at $60 a barrel, and it is now less than $50 a barrel, how about $20?

Former oil executive Nobuyuki Nakahara told Reuters today“Oil prices are likely to keep falling due to slower Chinese growth and because the years of prices above $100 before the recent plunge were ‘abnormal’ historically,” he said.

“I would not be surprised if the price falls to as low as around $20… It is purely due to supply and demand. There is a ceiling for oil because high energy prices dampen economic growth,” he added.

Effect on industry

Moody’s yesterday wrote that the global oil and gas industry is entering a challenging 2015 based on stubbornly low oil prices.

Moody’s says that among players exploration and production (E&P) companies will be hit first, while oilfield services (OFS) and midstream energy operators will feel the knock-on effects of reduced capital spending in the E&P sector.

Offshore contract drillers are likely to have their toughest year since 2009, and integrated oil majors are the best positioned to react to lower prices.

Offshore Energy Today Staff

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