A year after $100, oil prices cut in half
Jan 3rd, 2009 | By Oil and Gas | Category: Oil and Gas Industry
Exactly one year after crude eclipsed $100 a barrel for the first time, 2009 trading began Friday with prices roughly half their year-ago levels, and some believe oil could be headed even lower.
Oil markets kicked off the new year with crude climbing above $46 a barrel. A variety of factors were likely at work, including continued violence in Gaza and expectations that OPEC would carry out its largest production cut ever to stem historic price declines.
Oil market activity was also light as many traders took a long holiday weekend, and that can lead to price swings.
“I have a feeling, more than anything, it’s the thin trading conditions pushing the price higher,” said Peter Beutel of energy consultancy Cameron Hanover.
Light, sweet crude for February delivery rose $1.74 to settle at $46.34 a barrel on the New York Mercantile Exchange.
Oil’s surge into triple digits for the first time one year ago was the start of a climb that would peak above $147 a barrel by July. Since then, amid fears of a prolonged global recession and crumbling worldwide demand, crude prices have plunged more than 70 percent.
Gasoline prices ticked up a bit overnight, but the average price for a gallon of unleaded is still more than $1.40 cheaper than a year ago.
“Thank goodness that’s over!” Raymond James & Associates said in a note to clients Friday, summing up what many traders feel after the most volatile year since crude futures were first offered on Nymex in 1983.
The same gloomy economic data that drove prices into the mid-$30s in the final month of the year continued into 2009.
A private group’s measure of manufacturing activity fell more than expected in December, hitting the lowest reading in 28 years as new orders and employment continue to decline. The Institute for Supply Management, a trade group of purchasing executives, said Friday its manufacturing index fell to 32.4 in December from 36.2 in November. Wall Street economists surveyed by Thomson Reuters had expected the reading to fall to 35.5.
Any reading above 50 signals growth, while a reading below 50 indicates contraction. The index has fallen steadily for the last five months.
A weakened manufacturing sector suggests demand for energy will not rebound any time soon.
Activity in the U.S. oilfield already reflects expectations for anemic demand. Baker Hughes Inc. reported Friday the number of rigs actively exploring for oil and natural gas in the United States fell by 98 last week to 1,623. That’s nearly 16 percent fewer rigs at work than when oil prices peaked in July, and 9 percent below the year-ago figure.
The Department of Energy said Friday it plans to take advantage of the huge drop in crude prices and is soliciting bids to buy 12 million barrels of oil this year to replenish the nation’s Strategic Petroleum Reserve. The reserve is an emergency depot maintained by the Energy Department and can hold as much as 727 million barrels of oil in salt caverns along the Gulf Coast. The DOE said the new supplies will replace those used after hurricanes Katrina and Rita severely crimped oil supplies in 2005.
The February contract for crude rose $5.57 on Wednesday, the last trading day of 2008, to settle at $44.60 after Russia threatened to cut off natural gas supplies to Ukraine. Russia followed through with that threat Thursday, though both countries pledged they would keep supplies to the rest of Europe flowing.
As of late Friday afternoon, no interruptions outside Ukraine were reported.
Analyst Olivier Jakob of energy analysis firm Petromatrix in Switzerland said Ukraine has enough reserves to avoid an immediate risk to its supplies, as long as both parties find an agreement by the end of next week.
“If there is a disruption in natural gas supplies to Europe, then you will see an increase in the usage of oil instead of natural gas. It will have an impact on oil prices,” Jakob said.
The European Union depends on Russia for about a quarter of its gas, with about 80 percent of that delivered through pipelines controlled by Ukraine.
Concerns that the week-old conflict between Israel and Hamas in Gaza could disrupt supplies in the oil-rich Middle East helped keep prices from falling further.
The Organization of Petroleum Exporting Countries, which accounts for about 40 percent of global supply, has announced production cuts totaling more than 4 million barrels per day in the last few months. Analysts say crude’s direction in the early part of 2009 will be linked largely to whether the cartel adheres to the new quotas.
The national average at the pump rose slightly overnight but remains well below year-ago levels. The national average for regular unleaded rose eight-tenths of a cent to $1.626 a gallon, according to auto club AAA, the Oil Price Information Service and Wright Express. Still, prices are down 17.7 cents from a month ago and $1.426 from a year ago.
In other Nymex trading, gasoline futures rose 4.85 cents to $1.11 a gallon. Heating oil rose 3.8 cents to settle at $1.48 a gallon, while natural gas for February delivery jumped 24.9 cents to $5.971 per 1,000 cubic feet.
In London, February Brent crude rose $1.32 to settle at $46.91 a barrel on the ICE Futures exchange.
Source: news.yahoo.com
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The high cost of gas this past year has seriously destroyed every budget from the average family to the largest of municipalities.The average family went broke at the pump alone, then added to the misery the higher cost of manufacturing and shipping was passed on to us at the checkout for every consumer product. School districts went broke keeping the busses on the road.One police dept in my area required officers to park their car for 15 minutes of every hour just to conserve .Lower prices are not here to stay.OPEC just announced another production cut.With all these bailouts in the billions why doesn’t our nation see the need to bail us out of our dependence on foreign oil? I just read a really interesting new book called The Manhattan Project of 2009 Energy Independence Now by Jeff Wilson. http://www.themanhattanprojectof2009.com I never realized it would only cost the equivalent of 60 cents per gallon to charge and drive an electric car.
It cost only the equivalent of 60 cents per gallon to charge and drive an electric car at the average current electrical rates. Also that the electricity to charge the cars could be generated partially or totally by wind or solar generated electricity. If all gasoline cars, trucks, and SUV’s had plug-in electric drive trains,the amount of electricity needed to replace gasoline is about equal to the estimated wind energy potential of the state of North Dakota. Why don’t we use some of the billions in bail out money to bail us out of our dependence on foreign oil? This past year the high cost of fuel so seriously damaged our economy and society that the ripple effects will be felt for years to come. Why not invest in setting up some alternative energy projects on a national basis, create clean cheap electricity, create millions of badly needed new green collar jobs, and get out from under our dependence on foreign oil.What a win-win situation that would be.