2015 has been another terrible year for oil prices, finished off in what seems like fitting style with an OPEC meeting that failed to reach a consensus on cutting production, leaving the cartel pumping at record levels just as Iranian crude is about to hit the market, freed from the straitjacket of international sanctions.
The cartel has spent much of this year pumping crude at elevated levels as its producers aim for market share at the expense of higher-cost areas such as the US shale fields and the North Sea.
“Oil price weakness reflects the realisation that without the Saudis acting as swing producer to offset the unfettered production of other OPEC members such as Iraq and Iran, OPEC as a price-setting cartel is basically non-existent,” write Steve Platt and Mike McElroy of ADM Investor Services.
“The market is now subject to the laws of supply and demand, which dictate that price be the final arbiter of what makes economic sense.”
The market has proven a hard taskmaster, with oil prices down more than $70 per barrel from their 2014 peak, a fall in magnitude nearly double the current price of a barrel of benchmark crude.
However, Joseph Triepke, managing director of the Oilpro journal, has some Christmas cheer for the market.
“On an absolute basis, little downside remains” for the price of crude, he writes. He notes that current prices are below breakeven rates for many new US oil projects, and that some more companies will probably go bankrupt. However, he still thinks that 2016 will be the year when things finally stop getting worse.
“Every economic metric used to measure the oil and gas industry should trough in 2016,” he writes, “for declines cannot be infinite.”
Signs of a little stability in the oil market as the year bows out may suggest that the process is already starting.
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