Home Topics in Depth Economics Oil Below $49 as Rise in U.S. Drilling Threatens OPEC's Efforts

  • Purveyor (2634 posts)
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    Oil Below $49 as Rise in U.S. Drilling Threatens OPEC's Efforts

    by Jessica Summers
    March 12, 2017, 6:41 PM EDT
    March 13, 2017, 3:50 PM EDT

    Oil settles at the lowest level since November as record U.S. crude inventories and a boost in drilling activity threaten OPEC’s efforts to reduce a global glut.

    Futures slipped 0.2 percent in New York after fluctuating between slight gains and losses during the session. U.S. crude inventories probably rose by 3 million barrels last week, according to the median estimate in a Bloomberg survey before an Energy Information Administration report on Wednesday. Rigs targeting crude in the U.S. climbed to the highest since September 2015. Kuwait supports extending OPEC’s output deal beyond June, Kuwait’s official news agency Kuna reported, citing Oil Minister Issam Almarzooq.

    Oil broke below the $50-a-barrel level last week that it had held above since the Organization of Petroleum Exporting Countries and 11 other nations started trimming supply on Jan. 1. OPEC Secretary-General Mohammad Barkindo said that February compliance to the historic deal will be higher than January and shale producers have agreed that oversupply isn’t good for anyone. Yet, U.S. crude stockpiles are at a record-high level and production surged to the highest in more than a year. Rising U.S. output is the “main threat” to the global output deal, according to Russia’s largest producer.

    “It’s all about the short-term glut that we have to deal with today, with the potential shortage months down the road,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, said by telephone. “For the market to establish the fact that it has finally hit bottom, we really have to get the price of oil back above $50 a barrel, which is still a tall order at this point.”

    MORE…

    https://www.bloomberg.com/news/articles/2017-03-12/oil-holds-losses-as-u-s-supply-glut-expands-amid-libya-clashes

    Stonecarver, hypergrove, zoolook67 and 1 othergardengoddess like this

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  • hypergrove (168 posts)
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    1. Today I signed a 2yr contract for propane @ $1.77/gal

    They were eager to sign me up, foregoing one year tank rental plus no interest on unpaid balances (I enrolled in their $50/mo program).

    Interesting because many people believe we’re about to undergo another period of inflationary pressure due to running at near full employment (yea, I understand the labor force participation rate has dropped alot since 2007 crisis).

    Jimmy Dore has a new video out arguing that a “fossil fuel bubble” that Trump is encouraging with his (adoption of Obama’s all-of-the-above) oil-friendly policies, will indeed blow up in Trump’s face.  He points primarily to the dropping price of now very competitive renewable energy sources.

    A “bubble” happens when demand irrationally overshoots supply, resulting in an irrational price that can only crash down.  If we’re in a bubble now — at $1.77/gal — and the correction is to be, say, -30%, suggests that the price will be about $1.39/gal.

    Your post clearly indicates the fossil fuel industry is struggling hard to keep its price up in the face of an oversupply on the market, an oversupply resulting from US fracking on the one hand, and the really stressed-out balance sheets of non-US producers on the other hand.

    Note, if I were not under contract with my supplier then I’d pay $3.50/gal for a one-time delivery. Wow! Two other local suppliers have a delivery price ~$2.50/gal.

    All food for thought. Thanks for the excellent post!

    J ! Justice, Democrats, Justice ! P ! Primary the Corporatists ! R ! Roosevelt’s 2nd Bill of Rights !
    • FanBoy (7167 posts)
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      2. we're not anywhere near full employment, and no sign of rising inflation

      except in housing and education; bubblicious.

      that’s why they’re selling you propane cheap.

      • hypergrove (168 posts)
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        3. 4% is the historic norm for 'full-employment'

        October 2016: 4.9%

        Sure, that’s subject to a given labor force participation rate, which will no doubt rise as the labor market tightens.

        However I’m not in disagreement with you! These numbers are gross overalls; if you look at sub-populations, a completely different picture emerges.

        J ! Justice, Democrats, Justice ! P ! Primary the Corporatists ! R ! Roosevelt’s 2nd Bill of Rights !
        • FanBoy (7167 posts)
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          4. definition

          Definition: Labour force participation rate is defined as the section of working population in the age group of 16-64 in the economy currently employed or seeking employment. People who are still undergoing studies, housewives and persons above the age of 64 are not reckoned in the labour force.

          see any tightening yet?

          • hypergrove (168 posts)
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            5. yes I do, during 2016 it stabilized, just as the unemployment rate stabilized

            and it will go up as the unemployment rate nears 4%, if that should come to pass… remember, current admin thinks they’re going to grow the economy at 4% per annum, so yes, I would expect the unemployment rate to drop some more if that turns out to be true.

            I think a 4% growth rate is fantasy. Hard to tell which of his policies will be enacted into law, so the jury is still out regarding more realistic expectations.

             

            J ! Justice, Democrats, Justice ! P ! Primary the Corporatists ! R ! Roosevelt’s 2nd Bill of Rights !
            • FanBoy (7167 posts)
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              6. the longest downturn since the great depression and the unemployment

              rate is not stable as the presence of temp agencies is still growing; it shrinks when employment is tight

              the current admin is fully on board with cutting even more worker protections; same as it ever was

              As for growth, 4% is a fantasy

               

              • hypergrove (168 posts)
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                7. demand for temp agencies depends on employer expectations

                The demand for temp agencies increases as the supply of labor diminshes, that is, as the unit cost of labor increases with each tightening of the labor market. When resorting to “temp agencies”, employers are ‘testing’ the persistency of a low unemployment rate.

                IOW if there’s alot of unemployed people who are willing to take a cut in pay for any job, employers won’t hire relatively more expensive, temp labor. Temp agencies typically add 30% to the prevailing unit cost of labor; that premium is only worthwhile when
                a) employers can’t find someone to hire when demand for their product unexpectedly increases
                b) employers suspect an increased demand for their product is only temporary.

                So in an economy moving towards full employment, the number of temp agencies increases until a new equilibrium is reached when employer expectations are again aligned with the emerging economic reality.

                blah blah, yep, same as it ever was…lol

                J ! Justice, Democrats, Justice ! P ! Primary the Corporatists ! R ! Roosevelt’s 2nd Bill of Rights !
                • FanBoy (7167 posts)
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                  8. In my decades of experience the supply of temp agencies in town follows

                  the economy; if labor is truly tight, the supply diminishes — people get permanent jobs, not temp jobs.  Temp labor is cheaper — short-term and no company sponsored-benefits.  and lower risk, as in all contracting situations — which is why the market is increasingly moving to contract and temp labor, pushing risk and other costs onto labor a/o contractors.

                  It’s more expensive for the polity, but cheaper for capital.

                  • hypergrove (168 posts)
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                    9. I suspect were both right

                    Temp agencies are useful to both labor and capital during the periods of time when there is uncertainty in uphill and downhill markets.

                    Great conversation and I look forward to the next one. Moving on and take care.

                    J ! Justice, Democrats, Justice ! P ! Primary the Corporatists ! R ! Roosevelt’s 2nd Bill of Rights !