FUELS
By Keith Reid
P
rices are plunging, from crude to the products
that are refined from it. We touched on some
of the reasons in the last price outlook we
had before the heating season got underway,
and were going to expand on that somewhat
as the trend keeps continuing. Our two industry experts
being consulted are Alan Levine, CEO and chairman of
Powerhouse®, which provides hedging and price risk
management services; and Brian Milne, the editor of
Schneider Electric's MarketWire, a real-time market
and news service focused on U.S. oil product markets.
It should be noted that these interviews were conducted
late December through early January. Prices are very
dynamic at this point of time (though more so in a
downhill collapse type of way) and it's not inconceivable
that a significant shift could have occurred by the time
you're reading this article.
"What we're seeing right now is that we're in a price
war," Milne said. "It's not being called that, but the expec-
tation was when prices got this low you would see a lot
more production shut in and that is not happened. In fact,
there are indications that that this is going to be the way it
is. There are fewer wells being drilled, but there is a lot of
production out there and [OPEC] realizes that somebody
has to shut in production but whoever doesn't shut in
production will be better off."
To a great extent, what is happening is being looked
at as somewhat of a miscalculation by Saudi Arabia. The
speculation is that there was a lack of real intelligence as to
the actual production costs through fracking technology,
as well as overlooking some of the financial drivers that
would maintain production in the face of cost factors.
"The thing that made the difference was the Saudis,
who ordinarily would have reduced their output as a way
to support the market, decided that was not going to fly
anymore," Levine said. "So as a result of that they decided
to hold up to their production schedules, and effectively try
to reduce output by competitors in particular the United
States. And so far that plan hasn't worked out very well."
Levine noted that there are basically two time frames to
be aware of with these developments—current and future
production.
With the current productive capacity from existing
wells, the price point for profitable production has seem-
ingly been far lower than anticipated. "We went from
$90 to $80 to $60 per barrel and now the question is-
16 FEBRUARY 2015 | FUEL OIL NEWS | www.fueloilnews.com
Oil Prices Continue to Plummet
What can we expect from a price standpoint,
not just in the short term but looking down the road?
Photo
©123rf.com/Jim
Parkin
