Oil is Up a Little…So What’s to Thank?

Cantrelle to Face Opposition at the Polls
February 13, 2019
Levees and Gates, New Low-Income Housing Lead Terrebonne Progress
February 13, 2019
Cantrelle to Face Opposition at the Polls
February 13, 2019
Levees and Gates, New Low-Income Housing Lead Terrebonne Progress
February 13, 2019

 

UNCERTAINTY IN SOUTH AMERICAN COUNTRY 2,200 MILES AWAY AIDING SPIKE IN CRUDE PRICE

The see-saw continues to swing when it comes to the price of oil.


This fall, the news was positive. Prices were up, work was growing at a steady rate and locals were optimistic about a prosperous future.

But this winter, the bottom fell out and prices tanked — an epic fall from $70/barrel levels back down to the uncomfortably low $40/barrel prices that locals don’t like.

But like any good see-saw, the swing downward only lasts so long and the start of 2019 has started another uphill climb — one that locals hope starts a growing trend throughout all of the next year.


The price of oil has rebounded slightly throughout January, sitting near $55/barrel at press-time in the first week of February — a nearly 20 percent rise after the pitfall we’d seen for most of the winter.

Forecasts say the current level of growth is expected to continue before leveling off at a level in the $65-$75/barrel area — a mark which local experts say is well above the break-even price for companies doing business in the Gulf of Mexico.

“The break-even point right now is actually only $40/barrel,” Port Fourchon Executive Director Chett Chiasson said. “So now, we want to see some drilling take place and more business take place.”


So why has there been an upward swing in the price of oil?

Unfortunately, it’s not been anything that we can control locally. Instead it’s more the political unrest in a country in South America more than 2,200 miles away that’s generating the credit.

Venezuela’s government is in extreme political unrest with some of the world backing embattled President Nicolas Maduro as the country’s leader and others (including the United States, Canada, Australia and now the European Union) recognizing opposition leader Juan Guaido as the new man in charge.


The issue regarding the political unrest is complex and far too complicated to break down in detail within the context of this piece, but Maduro’s perceived unfair and corrupt election tactics have, in-part, led to stiff sanctions against the oil-rich country, which have gutted their supply on the global market.

According to a report on oilprice.com published in early February, the latest round of United States sanctions on Venezuela could drop their oil production below 1 million barrels per day — a stiff fall from the 3.1 million barrels of oil per day that the country averaged a decade ago, which accounted for $61 billion in revenues for the country’s economy.

What the continued cuts in Venezuela are doing is draining the global oil supply little-by-little, which usually would cause a significant jump in price — given the principles of supply and demand.


But that’s not happened, so why? Well, for one, there’s a supply glut, so the loss of Venezuela’s oil hasn’t been missed so far on the market.

Enhanced output by the United States, Russia and Saudi Arabia is creating a situation where there is almost 1.5 million barrels more per day than consumers need, according to an estimate of the market by Forbes. That glut is keeping the supply of oil rich — even without the South American oil.

The reason for that glut is part-politics globally and part a miscalculation for how much is needed around the world.


Studies show there’s a general lack of demand compared to projections. Studies throughout the past 3-6-months indicate the global demand is not as high as anticipated due to a slowdown in both the United States and worldwide economies — a somewhat unexpected drop given the highs our national economy have climbed under President Donald Trump.

In November, the production of U.S.-made goods fell and demand for use of machinery dropped around the country.

These indicators, according to heavy oil investors, show that demand is often on a downswing, which leads to lower ceiling on the price — like we saw this past winter.


“In a market that’s looking for direction, there’s concern that any slowdown in the manufacturing sector would slow down demand,” oil analyst Phil Flynn told CNBC.

So what happens next?

The situation in Venezuela is likely to go unresolved for many months with more nations recognizing Guaido and others digging in their heels in support of Maduro — namely China and Russia.


How the unrest plays out and how heated tensions between oil producing nations on each side of the issue get will likely decide the price throughout spring and summer.

Projections call for a continued steady climb toward the $65-70/barrel range throughout the year — which is being described as a “slow, steady” year of growth, according to projections. •

 

BY CASEY GISCLAIR