A WORRYING SIGN World oil prices have fallen 25% since June, at a time when you would think they should be rising with the onset of winter in the northern hemisphere, given all the turmoil in the Middle East and Eastern Europe. The underlying cause is a much broader economic slowdown worldwide, where Europes economic engine is facing the prospect of a slip back into recession and the BRIC nations all have shown signs of a slowdown in their economies. Combine this with greater oil production and energy efficiently in the oil consuming Western nations, and OPECs unwillingness to cut back and support a higher price for fear of losing even more market share. Something had to give, and oil prices started tumbling on world markets. IS is still advancing. Russia, the world’s third-biggest producer, is embroiled in Ukraine. Iraq, Syria, Nigeria and Libya, oil producers all, are in turmoil. But the price of Brent crude fell over 25% from $115 a barrel in mid-June to under $85 in mid-October, before recovering a little The future price of a barrel of oil beyond Christmas depends on what OPEC does or does not do, it could slide as far as $60 if the cartel doesnt blink according to one analyst OILSANDS EXPANSION CURTAILED Meanwhile, the price drop has implications for the worlds riskiest and most expensive oil: bitumen. According to the Paris-based International Energy Agency, one-quarter of all bitumen mining projects lose money when oil drops below $80 a barrel. In the last year Shell, Statoil and Total have all cancelled multi-billion-dollar projects in the oilsands due to concerns about the fragile economics of bitumen as well as a softening in global demand for oil. Goldman Sachs now estimates that more than half of the oil companies listed on the stock market are spending five times more than what they did in 2000 chasing extreme hydrocarbons. As a consequence, they need an oil price of $120 a barrel to remain cash neutral in the future. All of a sudden what makes economic sense at a certain price, doesnt make economic sense any more. - Jeff Rubin, former Chief Economist with CIBC World Markets WHERE OIL GOES, ALBERTA GOES For Alberta, the oil plunge is rekindling bitter memories. In the financial crisis of late 2008 and early 2009, skidding oil prices and a credit crunch forced the Canadian industry to cancel or shelve as much as $90-billion (Canadian) worth of energy expansion plans, many in the oil sands. At the time, WTI sank below $40 (U.S.) a barrel. Suddenly, some high-cost projects in Alberta are again at risk, and sustained weak pricing could hamper the industry’s current forecast for oil sands output to double over the next decade. Any cutbacks will reverberate through the Alberta economy, which has driven economic growth in Canada in recent years. A recent study by BMO Nesbitt Burns pegged the average cost of developing an oil-sands mine and operating it profitably at about $90 per barrel, well above the current price of crude. For example, the study said, costs at CNOOC Ltd.’s Long Lake project are well over $100 a barrel, and costs for the Suncor Energy Inc.-Total SA Fort Hills development, now under construction, are above $90. Source: TheGlobeAndMail ow.ly/Dmpqk and TheTyee.ca ow.ly/DmpuW
Posted on: Sun, 26 Oct 2014 21:09:34 +0000
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