West Texas Intermediate fell yesterday at $ 50 a barrel, after the Energy Information Administration announced a new weekly inventory constitution with record production, making the United States the largest oil producer in the world. In other circumstances, this would have been a reason for celebration. But with the prospect of lukewarm demand, traders rushed to the exit, reinforcing lower prices.
The EIA announced the creation of a weekly inventory of 3.6 million barrels yesterday, for the tenth in a row. Normally, this should not be a big problem. With winter being the season of weakest demand, the increase in inventories is normal. However, ten consecutive weekly groups make traders nervous, particularly due to growing concern over oversupply that has forced OPEC to start talking about cuts again.
Speaking of OPEC and reductions, this is another factor that has put pressure on prices in recent days. Saudi Arabia was the first to mention the cuts, but this week, Khalid al-Falih made it clear that the Kingdom would not be the only one to do so. Nigeria, meanwhile, said it might not be on board with another reduction in production. Libya has already requested an exemption. Russia takes its time to decide. In short, the prospects for reduction are at present uncertain.
Another bad news, the IEA said refiners' margins had dropped to their lowest level in five years thanks to record gasoline inventories. Crude oil production in the United States consists essentially of light crude oil, which is converted into gasoline. The typical production of an American refinery contains twice as much gasoline as middle distillates. Domestic fuel demand, however, has slowed, EIA noted, as production increased: refiners can not stock just all of the shale and Gulf of Mexico crude.
And then, of course, there is production. US production is 11.7 million barrels a day, tied with that of Saudi Arabia and ahead of Russia, which had reached a post-Soviet record of 11.4 million bpd before 39, be reduced by 40 000 bpd, according to the Minister of Energy Alexander Novak. at Bloomberg. Related: Three reasons why LNG prices in Asia are down
As usual, when West Texas Intermediate falls, the question of whether the current production rate can be maintained arises. Jeffrey Currie of Goldman Sachs recently told CNBC that total production of US production crude is about $ 50 per barrel, including the return on capital. On the basis of this estimate, many producers earn just $ 50 a barrel of WTI, and they can not stop pumping because they have debts to repay.
Yet, some believe that US producers are more resilient, able to maintain current production rates even if the WTI drops to 40 USD. Among them is the man who coined the term "shale price group", Olivier Jacob of Petromatrix. In a recent article by the Financial Times, Jacob wrote that the group was stronger than ever, reaching between $ 40 and $ 70 per barrel of WTI. If this is the case, OPEC will have to come to an agreement on these reductions. Few OPEC economies can move on to another cycle with $ 40 worth of oil so soon after the last time.
By Irina Slav for Oilprice.com
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