Saturday, August 22, 2015
Staff/wire report
YOUNGSTOWN
A barrel of U.S. crude fell below $40 for the first time since the end of the global economic crisis in February 2009.
Friday’s fall to $39.86 was just the latest indicator of a vast shift in the energy landscape.
“The drop in oil below $40 is a clear sign that domestic oil and gas production is in survival mode at the moment,” said Shawn Bennett, executive vice president of the Ohio Oil and Gas Association.
Oil prices have been falling steadily for eight-consecutive weeks. That’s the longest streak since 1986.
Prices have fallen almost 60 percent since this time last year and more than 34 percent in just the past three months.
PNC economist Mekael Teshome said the Iran nuclear deal and concerns with China’s slowing economy have influenced the price drop in the last couple of months, which has dropped gas prices but impacted oil and gas companies and steel producers.
PNC expects the price to average between the high $40s to low $50s from now until this time next year, and will go up to $54 in the fourth quarter of 2016.
“Nobody saw the drop coming here last fall, and I think, as an industry, we thought this would be short-term,” Bennett said. “We were all hopeful that it would hit $50 and go back up.”
The price drop in oil affects the price of natural-gas liquids, which is a primary product of Ohio’s Utica Shale play.
“The natural-gas liquid market continues to be in dire straits,” Bennett said.
The U.S. is churning out oil at an unprecedented pace, adding to the supply from energy powerhouses such as Saudi Arabia and other OPEC nations. Production in the U.S. averaged 9.4 million barrels in the four weeks ending Aug. 14, up nearly 11 percent from just a year ago, according to data released this week by the Energy Department. U.S. oil held in storage has reached levels not seen in at least 80 years.
“The question is how long can OPEC flood the market?” Bennett said. “Forty dollars is not sustainable for the U.S. oil and gas industry to continue to grow.”
Adding to the downward pressure on oil prices is a steady drumbeat of economic data out of China suggesting that the world’s second-largest economy is slowing.
The world’s biggest oil producers are getting hit by falling prices and pessimism about China and other economies that have not recovered from the recession like the U.S. has.
Almost all energy companies, from Exxon Mobil to BP, have cut spending on exploration or they have cut jobs, often both.
Gasoline is averaging $2.63 a gallon, down 81 cents from a year ago. Analysts say gas prices could drop below $2 a gallon in many areas of the country later this year.
Affecting gas prices in Ohio and other Midwest states is the shuttering of the BP refinery in Whitling, Ind., earlier this month for unscheduled repair work.
Patrick DeHaan, senior petroleum analyst from Gasbuddy.com, said there is word from several sources, but not BP, that the refinery could be fixed soon.
“So, if this BP situation plays out, we could see the prices drop below $2 a gallon in the next coming weeks,” he said.
Less than an hour before the close of trading, U.S. oil was down $1.25 to $40.07. Brent crude, which is used to price international oils, fell $1.07 to $45.55 in London.
Contributor: Kalea Hall, staff reporter