Crude oil prices fall
NYMEX-traded WTI (West Texas Intermediate) crude oil futures contracts for January delivery fell by 3.1% to close at $41.71 per barrel on Friday, November 27, 2015. Prices fell due to the slowing Chinese economy and the rising dollar. The United States Oil Fund (USO) and the ProShares Ultra DJ-UBS Crude Oil ETF (UCO) fell by 2.7% and 5.2%, respectively, on November 27, 2015.
Chinese stocks fall
Chinese stocks tumbled on Friday, November 27, 2015, and Chinese equities fell more than 5%. Last week’s returns were the worst since the August 2015 Chinese stock market collapse. Chinese stocks crashed in August due to speculation of a slowing Chinese economy. Since then, Chinese stocks had gained more than 20%. However, they fell on Friday due to investigation by Chinese regulators into brokerages firms.
The fall of stocks also factored in the slowing industrial output data. Chinese industrial output fell to a sixth-month low in October 2015. China is the second largest consumer of crude oil after the United States, and a slowing Chinese economy impacts the demand for crude oil. As a result, crude oil prices tumbled due to weak demand cues on Friday.
Crude oil prices fell more than 10% in November 2015. This is the largest monthly fall since July 2015. The fall in crude oil prices affects the profitability of oil producers such as BP (BP), Occidental Petroleum (OXY), Marathon Oil (MRO), and Hess (HES).
Iran and Libya
On November 28 and November 29, 2015, Iran conducted a two-day conference on investments in oil and gas projects. The event brought together 153 international companies, including major oil companies such as BP (BP), Royal Dutch Shell (RDS.A), Total (TOT), Eni (ENI), Repsol, and OMV. The event showed that new petroleum contracts are luring international oil companies.
Iran is waiting for oil sanctions to be lifted in order to scale up production. Iran has the lowest break-even cost for producing oil through new projects. It also has a strategic location advantage. Iran currently produces about 2.8 MMbpd (million barrels per day) of crude oil, as compared to 4 MMbpd in 2011. The consensus of rising production from Iran and Libya has added to the glut.
Gasoline prices rose by 8% for the week ending November 27, 2015, as compared with the previous week. Prices rose due to an increase in demand during the Thanksgiving holiday period. This was the highest weekly gain since April 2015 due to record low gasoline prices. However, the crude oil market was overshadowed by oversupply concerns despite rising gasoline prices.
In this series, we’ll look at crude oil prices and fundamentals. To learn more about US production, read the next part of this series.