Proshares ultrashort bloomberg crude oil (sco)

The prologue to the oil drop

Let’s go through the backstory of what led to the supply issue on the side of “OPEC+”.

In September 2016, OPEC, a select group of oil exporting countries, faced the prospect of lower oil prices without a production cut.

This incentivized the organization to make its first production cut since the steep fall in oil prices during the 2008 financial crisis.

In November 2016, OPEC agreed to trim one million barrels per day from global production. Russia and ten other non-OPEC members also agreed to the cut. This was a bit over 1 percent of global production.

In December 2017, Russia and OPEC to cut production 1.8 million barrels per day until the end of 2018 to take about 2 percent of global supply offline.

In June 2019, Russia and OPEC agree to extend cuts by another six to nine months.

By December 2019, OPEC and Russia agree to further cuts of 2.1 million barrels per day to prevent oversupply in the market, to last throughout Q1 2020.

In March 2020, with oil demand already down to the coronavirus pandemic hitting global prices, Saudi Arabia and Russia decide to stop cooperating on output cuts.

Economically, Saudi Arabia had been taking a disproportionate effect of the output cut. Saudi Arabia also has the advantage of being able to produce at less than $5 per barrel, while Russia’s estimated breakeven cost is around $25-$30.

Pushing more oil into the markets would also place economic pressure on the heavily indebted US shale industry.

So, both Saudi Arabia and Russia ceased cooperating on production restrictions. This extra supply virtually crashed the oil market. At one point, US WTI crude fell to $19 per barrel.

It’s understandable that this agreement between the two countries would eventually fray considering their different needs. It is especially intriguing given it fell apart in the middle of an economic crisis that is worse than the one in 2008 based on the depth of the economic contraction and the breadth of businesses impacted.

Did the coronavirus crash set the stage?

The virus-related demand shock is what put this into motion in the first place. Russia and Saudi Arabia had different views on how to handle it.

The Saudis wanted a big production cut to keep the market in balance. At the same time, they were concerned about what such a cut would do their market share. As mentioned, much of the economic effects of these cuts had fallen on them in the past.

Since 2014, Saudi Arabia has always been concerned about making cuts to the market without getting cooperation from Russia, and wouldn’t follow through without reciprocal action.

The Russians have been more mixed about the benefits of following OPEC and the Saudis on production cuts. They’re considered going their own way in the past.

Moreover, giving up market share is another variable on each side’s mind. Production cuts help boost prices, holding all else equal, directly benefiting US producers.

Since OPEC+ was established, US oil production has increased by over 50 percent. US production in February stood at a record 13.1 million barrels per day. That’s a higher rate than both Russia (11-12 million barrels per day) and Saudi Arabia (9-10 million barrels per day).

Cutting production makes sense in isolation to help improve the economics of oil production and exportation. However, the strategic presence of US shale throws a wrench into the scenario when the US can pump at will.

There’s not a black-and-white solution for either Russia or Saudi Arabia. In the short-term, cuts help. In the long-run, does opening the floodgates and producing more make sense to hit the US shale industry?

Cuts support prices

In such a dystopian world, demand for oil seemed likely to collapse. Predictions for crude oil prices were as downbeat as those for the economy as a whole.

In the background, two big producers, Russia and Saudi Arabia, seemed to be pumping huge amounts of oil in order to put the other out of business, a risky strategy at a time when demand was falling.

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However, both sides buried the hatchet in the spring and helped put together a package of production cuts to bolster prices. OPEC, led by Saudi Arabia, joined forces with the 10 countries in the “NOPEC” group led by Russia to agree to take about 10 per cent out of total production, about 10 million barrels a day.

As intended, this has had a supportive effect on prices. One month ago, on 28 July, Brent had recovered to $43.25 a barrel, and WTI to $42.83. At the time of writing, Brent is 0.69 per cent up on its previous close, at $45.44 a barrel, while WTI is down 0.29 per cent at $42.83.

In making crude oil prices predictions, the key question is whether this modest recovery can be maintained. That, in turn, raises a number of other questions relevant to predictions for crude oil prices.

One is the likely health of the world economy. Without a sustained recovery from the lockdown induced recession, demand for oil will slump once more and we could be back in the situation seen in April when prices actually turned negative.

Crude oil prices now seem to be bolstered by a general feeling that even if there is to be a “second spike” of the virus later this year, most major economies are unlikely to return to full lockdown. That, in turn, should help the world economy back on its feet.

Predictions for crude oil prices

A second is the likelihood that the OPEC-NOPEC deal will hold. In making predictions for crude oil prices, this is critical. In the past, production curbs have been sometimes undermined by cheating on the part of some OPEC members keen to reap the rewards of higher prices who do not not practise restraint themselves.

Reports of tankers carrying oil marked as “Presidential Reserve” or “Non-OPEC cargo” were widespread during OPEC’s weaker period from the mid-Eighties to the late Nineties. But this time, discipline seems to be holding, and participants in the output deal have committed themselves to “100 per cent monthly conformity” with the production curbs.

A third comes on the supply side, where American shale oil continues to pose a competitive threat to other oil producers, not least because the US is not party to the output cuts yet benefits from the higher prices the cuts support.

For the rest of this year, at least, the crude oil price latest news is likely to be generally positive. That is certainly the way the market seems to be betting.

That may seem a short-term view in light of the potential challenges to oil over the long term. With leading economies committed to reducing sharply their carbon emissions in order to slow the pollution of the environment, oil looks likely to come under increasing financial and regulatory pressure.

But the long term is made up of a series of short terms and, for now, the short term looks positive.

A quick summary of the oil price in 2020

A Saudi-Russian price war; demand and supply shock; negative prices; a 200 per cent rally in the past month – all these events make up a snapshot of the oil market so far in 2020. 

Oil prices, for the most part, are driven by supply and demand fundamentals. Entering 2020, global demand for oil was lacklustre. The Organisation of the Petroleum Exporting Countries (OPEC), a group of 14 of the world’s major oil-exporting nations, has been working with Russia to cut production since 2016. By March 2020, OPEC and its allies had been reducing output by 2.1 million barrels per day (bpd). Despite weak demand, WTI rallied into the end of 2019 as rising tensions between the US and Iran contributed to the elevated risk premium, pushing the oil price up.

The initial demand shock of 2020 came after the Chinese government imposed a strict lockdown in Wuhan and other cities in the Hubei province. Closure of Wuhan Airport and the declaration of Covid-19 as an international public health emergency had significant adverse effects on the passenger traffic in the region. China is the world’s largest importer of crude and its imports have been growing every year since 2003. In 2019, China imported a record 506 million tons of crude oil, an equivalent of 10.1 million bpd, according to Reuters.

In March, as the rate of Covid-19 infections in Europe accelerated, the oil market was rattled by a supply shock. At the March 6 OPEC+ meeting, with WTI prices at $45 per barrel, Saudi Arabia proposed an additional cut of 1.5 million bpd. If approved, this would have brought total cuts to 3.2 million bpd, not including voluntary reductions.

As Russia and Saudi Arabia could not reach an agreement, oil prices plunged to $31 per barrel when the markets opened on March 9. Russia announced that it would increase production instead, forcing Saudi Arabia and the UAE to respond in kind. This price war hit an already oversupplied market, with the International Energy Agency’s (IEA) report for March indicating a surplus of 3 million bpd. The acceleration of Covid-19 cases and deaths globally further depressed demand forecasts, driving oil prices to $20 per barrel by early April.

On April 12, the two sides reached a deal to cut production by 9.7 million bpd in May and June, the deepest cut in history. The cut, however, represented only 10 per cent of the global supply – significantly lower than the 29 million bpd collapse in demand.

Section 5: Conclusions

Peak oil demand is all the rage.

The prospect that global oil demand will gradually slow and eventually peak has created a cottage industry of executives and commentators trying to predict the point at which demand will peak. This focus seems misplaced. The date at which oil demand will stop growing is highly uncertain and small changes in assumptions can lead to vastly different estimates. More importantly, there is little reason to believe that once it does peak, that oil demand will fall sharply. The world is likely to demand large quantities of oil for many decades to come.

Rather, the significance of peak oil is that it signals a shift in paradigm – from an age of (perceived) scarcity to an age of abundance – and with it is likely to herald a shift to a more competitive market environment. This change in paradigm is also likely to pose material challenges for oil producing economies as they try both to ensure that their oil is produced and consumed, and at the same time diversify their economies fit for a world in which they can no longer rely on oil revenues to provide their main source of revenue for the indefinite future.

The extent and pace of this diversification is likely to have an important bearing on oil prices over the next 20 or 30 years. It seems likely that many low-cost producers will delay the pace at which they adopt a more competitive “higher volume, lower price” strategy until they have made material progress in reforming their economies. More generally, it seems unlikely that oil prices will stabilise around a level in which many of the world’s major oil producing economies are running large and persistent fiscal deficits. As such, the average level of oil prices over the next few decades is likely to depend more on developments in the social cost of production across the major oil producing economies than on the physical cost of extraction.

Spencer Dale
Group chief economist, bp

Bassam Fattouh
Director of The Oxford Institute for Energy Studies

Will US shale be permanently harmed?

Even before the coronavirus pandemic, the dynamics in the US oil industry were changing.

Before, aggressive growth was the primary goal, believing that cash flow could wait in order to grab more share of the market.

Now, the focus is much more heavily on cash flow and making oil production a profitable business and generating long-term returns.

This means the oil was market was starting to price in less pumping and therefore lower future oil supply coming from US shale.

With the pandemic hurting demand and prices falling, producers are cutting capital spending and bankruptcies and consolidation will need to occur. Either way, it will be a painful period for the US shale industry.

But challenges also breed changes. Operations will reworked. Shale is no longer a new industry and the pandemic has sped along its maturation. These companies will need to become more investor friendly.

Over the past 10-15 years, oil has been a very poor performing segment of the stock market despite the broader market’s huge bull market run from March 2009 to February 2020. The amount of underinvestment in the industry has been large and more investors have focused on ESG initiatives and de-carbonization. This will mean more of a future focus on earnings and being cash flow positive. Committing to dividends is difficult because it essentially means that a portion of your earnings is guaranteed. (Cutting a dividend typically hits the share price hard).

But when the pandemic is over (permanently) and the economy rebounds, what’s the fastest way to get oil capacity back online? It’s through shale.

Its short-cycle nature means that wells can shut in quickly and restart promptly with limited lost capacity. Once demand recovers, the short drilling time and output flexibility is a huge strategic advantage.

Accordingly, the industry still has a large role to play in the global energy markets.

Disadvantages of low oil prices for the US

however, things are not Going smoothly for the US either. The lowest prices for WTI oil literally tie the hands and feet of developers of shale oil production in this country, which is absolutely unthinkable to extract at such prices, because the cost of developing and extracting from shale deposits is much higher than the cost of oil production in other ways. However, during the period of high oil prices, many shale oil fields were still successfully developed and put into operation, which filled even more US storage facilities, which also contributed to the first reversal, and then the rapid fall in WTI oil prices. And this is despite the fact that global oil consumption is only increasing. It is no secret that alternative energy sources, of which Europe is a major proponent, are still expensive and account for a very small percentage of total energy consumption.

It is possible that there is a whole system and organizations that closely monitor the situation on the oil market, prices and oil trading, and that are puzzled how to influence the price on a large scale downward. This is the most important factor in oil pricing, along with what is openly presented in the media.

Pressure of low oil prices on Russia

Everything is exactly the opposite for the comfort of the Russian budget. The falling prices for WTI crude oil it can seriously bleed the body of the Russian economy, despite the gold and foreign exchange reserves. The sale of energy to replenish the budget for more than half a year. Just calculate what the country will miss if the price of oil falls by at least $ 5 per barrel, let alone such steep drops. Russia generally does not benefit from large volatility in the price of oil futures and options, because this complicates calculations. Even a sharp increase leads to some imbalances, because free resources are always profitable to put into action, and not to collect in a sock, what can we say about sharp drops. The low price of WTI oil is accompanied by a fall in the ruble, inflating interest rates in order to keep inflation down. The standard of living of the population is falling, and purchasing power is falling. Imported goods are becoming too expensive, including not only consumer goods, but also important goods for the country’s strategic development and stability.

Who benefits from low oil prices and who’s disadvantaged?

At the macro level, do the oil consumers (there are more oil consumers than oil producers) increase spending as quickly as oil producers decrease their own spending (through less income and lower investment)? If this is true, the effects globally would theoretically net out.

Oil shocks can have adverse effects both ways. However, oil demand is famously inelastic in the short-run. In other words, over short time horizons, price doesn’t influence demand much.

Lower oil prices are felt more broadly while losses are more concentrated – i.e., among producers and oil exporters. Most economic participants – both individuals, companies, and countries – are buyers or consumers of oil. Few are producers. Holding all else equal, when oil declines, most economies benefit while the losses are concentrated among a few countries.

Final Thoughts

Oil is the world’s most important commodity. When the spot price of oil becomes low relative to future months (i.e., the curve is in contango), then the commodity becomes more valuable to store than to use. The futures market expects oil to be $13 higher than it is currently in six months. That’s an expectation of a 57 percent gain.

In normal times, a drop in oil would come to the benefit of most consumers. But because of movement restrictions due to the virus-related lockdown, few are taking advantage.

Moreover, the drop in oil is partially because of weakness in the broader economy. Even in the absence of a Russia-Saudi Arabia price war, oil prices would have gotten crushed. Oil demand at the peak of the coronavirus crash ran at about 80 percent of normal. That means roughly 20 million barrels per day weren’t being consumed.

Is the bottom in on oil?

Due to this blend of circumstances, financially motivated buyers will demand as much physical crude oil as they can store, if they believe they can sell it for a much higher price down the road. Additionally, high-cost producers see the economics of the business become terrible and stop pumping, eventually contributing to a supply shortage. However, there is a long way to go before the supply is inadequate relative to demand.

Oil will not see a V-shaped recovery. It will be U-shaped and carry on over time. It will require a combination of increased demand, which will come from widespread re-openings of the economy and production cuts from OPEC(+) and from the producers taken offline.

Meanwhile, there is limited storage space. Inventories have never been able to take more than 4.7 million barrels per day in any given month historically. Extra storage space will not rise dramatically month to month. From the starting point of the crisis, an extra 20 million barrels of oil were produced in excess of demand.

This means that producers have to fear that the crude they produce may not even be wanted if it can’t be consumed or stored. That makes it likely that crude oil prices will remain lower for longer.

Update

OPEC+, a consortium of the thirteen OPEC member countries plus ten additional countries, agreed to cut 9.7 million barrels from production (per day) on April 12. The organization wanted to reach a deal before markets opened Sunday night to avoid an expected further crash in the market if no agreement came.

Under the final deal, Mexico agreed to cut 100k barrels of daily output. Saudi Arabia initially wanted 350k barrels of cuts from Mexico but met resistance from the country’s president and energy minister.

The US intervened on Mexico’s behalf and agreed to cut some of their own production to help make an agreement given the time constraints they were effectively operating under.

It is believed that the US cut 300k barrels of its own daily production for Mexico alone. Altogether, the US, Canada, and Brazil will restrain up to 3.7 million barrels per day but some of the reductions will be driven by the drop in demand and not based on cooperation with OPEC itself.

While the deal helped avoid a further leg down in oil, WTI prices still remain around $22 per barrel at the time the market opened.

Crude oil market outlook

OPEC is expected to restrain oil production in 2020. The 14-member producer group lowered their numbers, because of “signs of stress in the global economy”. OPEC has revised their own crude oil production and expects a decline for the next five years from 35 million b/d in 2019 to 32.8 million b/d in 2024.

OPEC’s report came amid increasing concerns of many crude oil market participants about a repeat of rising supply and falling demand – the same as happened in mid-2014 when crude oil price experienced a huge fall.

Analysing the crude oil price trend for the nearest future, OPEC forecasts oil demand to continue at “healthy rates” over the next five years, expecting a rise of 6.1 million b/d compared to the level of 2018.

According to the International Energy Agency’s executive director Dr Fatih Birol, “The second wave of the US shale revolution is coming. It will see the United States account for 70 per cent of the rise in global oil production and some 75 per cent of the expansion in LNG trade over the next five years.  This will shake up international oil and gas trade flows, with profound implications for the geopolitics of energy”.

On Tuesday, December 3, 2019 Brent crude traded at $60.78, while US WTI stood at $56.06.

Oil from Russia

Urals Crude Oil — a mixture (a mixture of heavy and high-grade Urals oil, with light oil of Western Siberia, with an API density of approximately 32 and a sulfur content of about 1.2%), produced in the Khanty-Mansi Autonomous Okrug, Bashkortostan and Tatarstan. This oil is supplied via the Baku-Novorossiysk pipeline and the Druzhba pipeline system . The world’s largest Urals oil producers are Rosneft, LUKOIL, Gazprom Neft and Tatneft . Urals oil futures are listed on the Russian RTS stock exchange. On the new York Mercantile exchange NYMEX «Ural» it is known as REBCO and is traded under the Ticker symbol RE, in US dollars per barrel. The largest consumersn oil are Italy and Rotterdam, the Netherlands.

Live Crude Oil prices

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Commodity Pair: Price Last Daily Change Day Low Day High Updated
OIL AUD 98.81640 0.00000 +98.82 +INF% 0.00000 0.00000 09:57:10
OIL CAD 91.61824 0.00000 +91.62 +INF% 0.00000 0.00000 09:57:10
OIL CHF 66.93792 0.00000 +66.94 +INF% 0.00000 0.00000 09:57:10
OIL CNY 464.27316 0.00000 +464.27 +INF% 0.00000 0.00000 09:57:10
OIL CZK 1554.16363 0.00000 +1554.16 +INF% 0.00000 0.00000 09:57:10
OIL EUR 61.23197 0.00000 +61.23 +INF% 0.00000 0.00000 09:57:10
OIL GBP 52.25432 0.00000 +52.25 +INF% 0.00000 0.00000 09:57:10
OIL HKD 558.80640 0.00000 +558.81 +INF% 0.00000 0.00000 09:57:10
OIL ILS 230.21593 0.00000 +230.22 +INF% 0.00000 0.00000 09:57:10
OIL JPY 7892.90220 0.00000 +7892.9 +INF% 0.00000 0.00000 09:57:10
OIL MXN 1437.32651 0.00000 +1437.33 +INF% 0.00000 0.00000 09:57:10
OIL NOK 625.24876 0.00000 +625.25 +INF% 0.00000 0.00000 09:57:10
OIL NZD 102.00303 0.00000 +102 +INF% 0.00000 0.00000 09:57:10
OIL PLN 281.17598 0.00000 +281.18 +INF% 0.00000 0.00000 09:57:10
OIL SEK 623.52915 0.00000 +623.53 +INF% 0.00000 0.00000 09:57:10
OIL SGD 96.79645 0.00000 +96.8 +INF% 0.00000 0.00000 09:57:10
OIL TRY 620.68766 0.00000 +620.69 +INF% 0.00000 0.00000 09:57:10
OIL USD 71.80000 71.80000 +0 +0% 71.80000 71.80000 09:57:10
OIL ZAR 1054.74200 0.00000 +1054.74 +INF% 0.00000 0.00000 09:57:10

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oil price

Movements in the price of WTI oil futures on the market are quite volatile (sweeping) and you can make money on this by betting on an increase or decrease in quotes. Crude oil is one of the most widely used and actively traded commodities in the world. The price of futures on the market is represented in dollars, and they are traded on international commodity exchanges. More and more often, Forex companies are offering new tools derived from the price of oil, which you can also play and speculate on.
Oil is oil everywhere, but oil grades have important differences. The main ones are the density and content of sulfur, which can be important for buyers and sellers. According to the new standards, the sulfur content in gasoline should be much lower as a percentage than in crude oil. Reducing the percentage of sulfur is quite a difficult task, and for the production of gasoline and diesel fuel, oil grades with as little sulfur as possible are more suitable.

The US and their oil situation

The US is net flat when it comes to the influence of oil prices on its balance of payments. It exports sweet light crude and imports heavy due to specialized refinery needs. They approximately balance out.

Shale is one of the most elastic (i.e., demand is sensitive to price) parts of the oil supply. Wells get exhausted quickly, so shale producers need to keep drilling to maintain output. If shale aggregate breakeven is about $40 per barrel, then going from $60 to $45 doesn’t mean as much as going from $45 to $30. In the case of the former, a shale producer is still profitable, in the latter production dries up with the economics being destroyed.

How long will the oil ‘price war’ last? Who will blink first?

The mean-weighted opinion is that there will be a quick resolution of some sort, or at least a pickup in demand once the pandemic is controlled.

For example, as noted earlier, investors expect oil prices to rise by nearly 60 percent within the next six months looking at the forward futures curve.

Some are more skeptical.

Timelines and decisions on how to handle production can take a long time to come to fruition. From 2014 to 2016, when the market plummeted it took more than two years to agree to production cuts through OPEC+.

But circumstances are different today. The global economy is no longer in good shape. Even if the coronavirus issue is resolved, it will take a while for economies to get back to normal.

Back then, lower oil prices were stimulative to economic growth. Oil going from $100 per barrel to $50 was a big drop when it happened. But it was still low enough to keep production solid while giving a boost to global growth with a lag (outside Russia, Saudi Arabia, UAE, Malaysia, and Norway as the main players) and without inflation.

Today, low prices don’t help stimulate the consumer. People drive less and they fly less while the “stay at home” orders are widely in effect throughout the developed world. The oil recovery will remain invariably tied to the coronavirus related recovery.

As much as the supply issue has gotten attention, the extra supply coming online from Russia and Saudi Arabia is only a small fraction of the demand that was lost.

Political pressure could help at least change the trajectory. Rumors of getting Saudi Arabia and Russia back to the table move prices about 10 percent either way. The 2016 deal was heavily brokered based on a side meeting of Mohammad bin Salman and Putin, so there is already some level of precedent and rapport.

Moreover, Donald Trump is no longer neutral. This year’s Group of 20 (“G20”) meeting is chaired by Saudi Arabia. The purpose of the G20 is to help bring up present issues and improve global economic performance and cooperation. Will the Saudis be willing to change their current perspective on the global oil market?

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Any oil price forecast invariably depends on global supply and demand dynamics. In the short term, the prices will continue to fluctuate, driven by Covid-19 newsflow on the demand side, and compliance with the production cuts on the supply side. 

Global demand has recovered somewhat, from being down almost 30 million bpd in mid-April to about 19 million bpd in mid-May. Several brokers, including Goldman Sachs (GS) and UBS (UBSG), have lifted their oil price forecasts on the back of the positive supply-demand momentum. 

However, as prices increase, compliance with the supply cuts becomes more challenging. For the US shale industry, the break-even price is considered to be around $50 per barrel. With oil spot prices at $35 per barrel, producers at the lower end of the cost curve can begin to increase production. It is essential to watch the Baker Hughes rig count numbers and the US inventory levels for any signs of increased production.

With the recovery in oil demand remaining uncertain and geopolitical tensions between the US and China steadily rising, any increase in production will likely put a lid on oil prices. Factset oil analysis puts consensus estimate for WTI prices at $38 per barrel by the end of 2020, indicating limited upside for the rest of the year.

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Follow our comprehensive chart to explore the US crude oil price in real time.

US crude oil is one of the world’s most valuable commodities available for trade. Also known as West Texas Intermediate (WTI) or Texas light sweet, it is a popular investment tool used by international investors seeking true asset class diversification in their portfolio. The commodity is often seen as a hedge against any financial uncertainty, inflation, deflation or currency devaluation.

WTI is a benchmark that serves as a reference price for sellers and buyers of crude oil across the United States. Due to its relatively low density and low sulphur content, it is generally considered lighter and sweeter than Brent, making it ideal for gasoline refining.

According to the historical US crude oil chart, the commodity reached a record low of $11 in December 1998 and a record high of $147.27 in June 2008.

Stay up-to-date with the latest market news and watch the US crude oil spot price live at Capital.com.

US crude oil is a blend of several American streams of light sweet crude oils. It is sourced from several oil fields, including those in Texas, North Dakota and Louisiana, and refined in the Midwest and Gulf Coast regions. Cushing, Oklahoma, is the major trading hub for US crude oil.

Even though WTI is considered the highest-quality light sweet crude available, it is not the most used oil worldwide. This is due to the land-locked supply allocation, which makes its transportation around the globe more difficult and expensive than that of water-borne Brent.

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With regard to the price of US crude oil, the commodity has witnessed a lot of volatility throughout its history, hitting some dramatic peaks and bottoms.

For many decades, due to its unique properties, US crude oil had traded at a dollar or two premium to Brent and the OPEC basket. However, because of the following Shale Revolution in the early 2000s, when WTI production increased, and more imports to the US from Canada, the commodity has started trading at a discount against its major counterparts.

At the start of 1999, it stood as low as $12 a barrel. During the following years, it had climbed steadily until it reached its all-time high of more than $147 a barrel in mid-2008. However, the bullish trend reversed in the second half of the same year, with the crude oil spot price falling as low as $37.80 a barrel in early 2009.

In 2017, the average price for WTI crude oil stood at $50.84 per barrel; in 2018 – at around $67.22. As for 2019, the commodity ended the year at $61 a barrel.

In general, the US crude oil rate significantly relies on the wider performance of the US economy. In addition, as with any other traded commodity, its value depends on the basic laws of supply and demand. For example, when supplies are tight, you can expect the price of oil to rise.

Will OPEC rebalance the market?

Clearly, most oil producers – oil exporting countries and oil producing private companies – want higher oil.

The US shale industry, which can turn production on and off much more quickly than longer-cycle projects, has established more control over the oil market globally over the past decade. Part of the calculus behind Russia and Saudi Arabia going their separate ways is a longer-term strategy to push out higher-cost producers. This includes US shale, which has less than stellar economics and often involves lots of borrowing to get projects online.

Many shale producers will need to declare bankruptcy. Many already have or are going to shortly. The US may also deem some of these projects to be strategic assets. The current US administration wants the country to not be dependent on foreign sources of energy, at least on a net basis. Widespread bankruptcies of key oil producers could undermine this objective.

If OPEC were to want to boost prices with cuts, it depends on two things:

(i) When do they cut?

(ii) How much do they cut?

Another important factor lies in the cost of production in the US and among other producers? It’s gone down pretty dramatically since 2014.

The cost of finding and development (F&D) was about $30 per barrel in 2015-16 and was $12 per barrel in 2018-19. If you isolate that variable econometrically, that tends to put WTI crude oil’s fair value in the mid-to-high $40s.

In terms of corporate cost structures, if you’re thinking of putting your money in companies with ~$60 per barrel breakeven prices, that’s probably not a good bet. It’s unlikely that companies, at least those that have a focus on upstream operations, can sustain themselves if they need $60 oil. (The average “oil services” company revenue mix is 60 percent upstream, 25 percent LNG/midstream, 5 percent downstream, and 10 percent other.)

If you want to get into natural gas, you will see a material number of bankruptcies if prices stay sub-1.90/sub-2.00 per MMBTU. It’s not just 2020 prices, but prices in the 2021 curve on out have gone this low as well.

What about the oil majors?

The majors (e.g., ExxonMobil, Chevron), or the large integrated oil companies, will also need to cut back on their spending. They will work to focus on cutting down capital spending on new projects and preserve their dividend.

Oil is a very international industry. If someone gets the virus at a particular drilling site, then that operation may be on hiatus for a while. Travel between countries is down or shut off completely. The whole logistical picture is challenging.

But overall, the oil majors are the best equipped to handle downturns. Their focus on long-cycle assets is generally more stable and accretive to shareholder value. The short-cycle shale-focused companies have tended to destroy shareholder capital and has been a big part of their underperformance.

WTI oil (Light)

West Texas Intermediate (WTI) otherwise known as Texas Light Sweet and shipped from Texas and Mexico. This oil contains a small amount of sulfur and density. The sulfur content is about 0.24%, and the density is 39.6 units, and this oil is considered sweet and light oil. Refining of this oil is usually done in the Persian Gulf regions, as well as the United States due to the closest location to oil reserves. Light Sweet Crude Oil (WTI) is traded on the NYMEX under the Ticker CL. WTI crude oil is traded in the form of futures and options, which is a tool for high liquidity trading on commodity exchanges.

Oil Price Forecast 2025 and 2050

The EIA predicted that, by 2025, Brent crude oil’s nominal price will rise to $66/b.

By 2030, world demand is seen driving Brent prices to $89/b. By 2040, prices are projected to be $132/b. By then, the cheap oil sources will have been exhausted, making it more expensive to extract oil. By 2050, oil prices will be $185/b, according to the EIA’s Annual Energy Outlook.

The EIA assumes that demand for petroleum flattens out as utilities rely more on natural gas and renewable energy. It also assumes the economy grows around 2% annually on average, while energy consumption decreases by 0.4% a year. The EIA also has predictions for other possible scenarios.