9 Sep

Crude Oil Prices Fell and Warren Buffet Sold ExxonMobil

WRITTEN BY Gordon Kristopher

Crude oil prices fall

This series analyzes crude oil prices and fundamentals. For an in-depth fundamental look at oil and gas and related companies, sectors, and drivers, please refer to our Energy and Power page.

NYMEX-traded WTI (West Texas Intermediate) crude oil futures contracts for October delivery fell slightly by 0.24% and closed at $45.94 per barrel on Tuesday, September 8, 2015. Prices traded almost flat, but oversupply concerns were weighing on crude oil prices. ETFs like the United States Oil Fund LP (USO) and the ProShares Ultra DJ-UBS Crude Oil (UCO) also mirrored the price trajectory of US crude oil prices in yesterday’s trade. These ETFs fell by 0.40% and 0.29%, respectively, on September 8, 2015.

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Crude oil production from the North Sea 

The latest data suggest that crude oil production from the North Sea could hit the highest level since 2012 as the newly started projects come online. Crude oil shipments from the North Sea could hit 2.1 MMbpd (million barrels per day), according to data compiled by Bloomberg. The record production from the North Sea could extend the crude oil bear market.

Nigeria and Angola

Countries like Nigeria and Angola are also following the North Sea’s footsteps. Recently, the production in these countries has also risen. The spike in production could have a short-term price impact on crude oil prices.

Inventory data

On September 9, 2015, the API (American Petroleum Institute) will release the US commercial crude oil stockpile data. Last week, the US industry group report showed that the oil stocks rose by 7.6 MMbbls (million barrels) for the week ending August 28, 2015. The record stockpile and record production from the US to Saudi Arabia will continue to weigh on crude oil prices. 

Demand side

The slowing demand from the Asian majors like China and Japan will widen the gap between supply and demand in the oversupplied market. The peak summer season is nearing an end and the refinery maintenance season is beginning. This could curb the normal demand for crude oil. It could put pressure on crude oil prices.

Oil market industry

In the US, the consensus from the Financial Times estimates that the US shale industry ran a $32 billion deficit in 1H15. It’s almost equivalent to the deficit in 2014. Barclays estimates that the global oil and gas industry is reducing its exploration and production budgets by $132 billion in 2015. The spending cuts could increase in 2016.

Billionaire investor Warren Buffet has sold shares of integrated oil major ExxonMobil (XOM) and bought shares of oil refiner Phillips 66 (PSX). Buffet stated that the pessimistic view on crude oil prices led to the exit. Long-term lower crude prices impacted oil producers the most. US refiners like Phillips 66, Marathon Oil (MPC), and Valero Energy (VLO) have benefitted from lower crude oil prices. They account for 7.57% of the Energy Select Sector SPDR ETF (XLE).

The oil refiners have risen 15% in 2015 compared a 20% fall in the energy sector in 2015, according to data from Bloomberg. Standard & Poor’s estimates that oil and gas companies account for 28% of all the corporate defaults globally in 2015. If crude oil prices fall more, it could cripple the oil companies’ liquidity.

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