Home' Trinidad and Tobago Guardian : December 10th 2015 Contents DECEMBER 10 • 2015 www.guardian.co.tt BUSINESS GUARDIAN
ENERGY | BG9
Crude oil prices could go as
low as US$26 a barrel,
according to the latest report
of the US Energy Informa-
tion Agency (EIA).
In its latest short-term energy forecast,
the EIA said 2016 is expected to be filled
with significant oil price volatility due to
several factors not the least of which is the
re-entry of Iran to the global oil market fol-
lowing the lifting of sanctions.
In a report released on Monday the EIA
said: "The current values of futures and
options contracts continue to suggest high
uncertainty in the price outlook. WTI futures
contracts for March 2016 delivery, traded
during the five-day period ending December
3, averaged US$44/b, while implied volatility
averaged 42 per cent.
These levels established the lower and
upper limits of the 95 per cent confidence
interval for the market s expectations of
monthly average WTI prices in March 2016
at US$30/b and US$63/b, respectively. The
95 per cent confidence interval for market
expectations widens over time, with lower
and upper limits of US$26/b and US$90/b
for prices in December 2016."
This is not good news for the Government
which is dealing with reduced tax revenues
due to weak commodity prices. Finance
Minister Colm Imbert pegged the 2016
national budget on a crude oil price of US$45
a barrel and will be hoping that the optimistic
possibility of US$90 a barrel holds rather
than the pessimistic outlook of US$26 a
The EIA said using its modelling it felt
that the price of Brent crude will average
US$56 a barrel next year or US$3 more than
it is expected to average this year.
The report read: "EIA s crude oil price
forecast remains subject to significant uncer-
tainties as the oil market moves toward bal-
ance. During this period of price discovery,
oil prices could continue to experience peri-
ods of heightened volatility.
"The oil market faces many uncertainties
heading into 2016, including the pace and
volume at which Iranian oil reenters the
market, the strength of oil consumption
growth, and the responsiveness of non-
OPEC production to low oil prices."
The EIA blamed continuing increase in
global liquids inventories for putting signif-
icant downward pressure on oil prices. It
noted that inventories rose by an estimated
1.8 million b/d through the first three quarters
of 2015, compared with an average build of
0.5 million b/d over the same period in 2014.
Further, it said the stance of OPEC led by
Saudi Arabia showed the Cartel was more
concerned with maintenance of market share
than global prices.
The news is no better for the natural gas
side of the equation. Low crude prices are
likely to keep natural gas prices soft in mar-
kets like Asia and parts of Europe because
of its indexation to crude oil.
In the US where T&T still exports LNG,
the situation is grim with predictions that
next year prices will not even go past US$3
Several major projects in the US have
recently come online in the Marcellus, and
a few others are set to begin service before
the end of the year. In Pennsylvania, where
most Marcellus drilling is located, production
growth was flat earlier this year, but pro-
duction reached a record level in September,
according to EIA s most recent production
The report read: "Continuing increases in
domestic natural gas production are expected
to reduce demand for natural gas imports
from Canada and to support growth in
exports to Mexico. EIA expects natural gas
exports to Mexico, particularly from the
Eagle Ford Shale in South Texas, to increase
because of growing demand from Mexico s
electric power sector coupled with flat natural
gas production in Mexico."
On the New York Mercantile Exchange
(Nymex) on Tuesday, light, sweet crude
closed at US$37.78 a barrel, which is a decline
of 40 per cent from the price a year ago.
"The fall in oil prices suggests weak
demand globally and has worried investors
as they put together their outlook for the
coming year," Scott Brown, chief economist
at Raymond James in St Petersburg, Florida,
told the Reuters news agency.
The concerns over a crude glut hit cur-
rencies of major oil exporters, with the Cana-
dian dollar and Norwegian crown hitting
decade-plus lows against the US dollar. The
dollar retreated against the euro and yen,
The dollar index, which tracks the green-
back versus a basket of six currencies, was
last down 0.17 per cent, at 98.488.
"It s a perfect storm for commodity cur-
rencies," said Mazen Issa, senior currency
strategist at TD Securities in New York.
Data showed China s imports fell for the
13th consecutive month, with an 8.7 per
cent decline in November compared with a
year earlier, intensifying concerns over the
strength of the world s second-biggest econ-
The recent decline in oil prices comes
after last week s decision by OPEC not to
cut oil output following a contentious six-
hour meeting on Friday. The oil cartel
essentially left production near record
highs despite the oversupply problem.
OPEC is gripped by a deep divide
between two factions, one led by the top
oil producing nation Saudi Arabia and its
rich allies in the Gulf that can stomach
cheap oil and another led by Nigeria,
Venezuela and other countries that need
higher prices to boost their economies.
But with Saudi Arabia firmly in control
of decision making, a near-term oil recov-
ery doesn t seem likely.
Oil s crash began last year as the Amer-
ican shale oil boom flooded the market
with excess supply. Inventories of oil have
swelled to a record of nearly 3 billion bar-
rels, according to the International Energy
Rather than cut supply to boost prices,
OPEC has been aggressively pumping oil
in an effort to steal back market share.
US production remains near record-
highs, though it has backed off in recent
Oil prices haven t been helped by the
so-so economic environment around the
world. The US economy is enjoying just
a modest recovery from the Great Reces-
sion and many other parts of the world---
especially China---are slowing down.
Crude oil could go as
low as US$30 a barrel
"It s a perfect storm
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