Aug 2015 Financial News

Oil just above T&T budget peg

Aug 04, 2015

Oil prices on international markets sank to six-month lows yesterday ending the trading session just a few cents above the US$45 a barrel on which the T&T national budget is pegged.

West Texas Intermediate (WTI), the benchmark crude which is closest in price to the range of crudes produced in T&T, dropped to its lowest level in more than four months. It tumbled 4 per cent to settle at US$45.17 a barrel but was still above its March low when it dipped under US$43 a barrel.

WTI crude has been declining since reaching a high of US$61.43 a barrel on June 10. It's down 15 per cent so far this year.

Brent, the global benchmark, was down US$2.35, or 4.5 per cent, at US$49.86 a barrel by early afternoon. At one point during the day it was at US$49.52—its lowest since January 30.

Market observers say there are several reasons for the latest fall, including the fact that last month’s output from the Organisation of the Petroleum Exporting Countries (Opec) was at its highest monthly level in recent history. This has raised concerns about oversupply, a situation that is further exacerbated by reports that Saudi Arabia may raise prices for its light crude by around US$1 a barrel—a move that is likely to hurt demand.

Meanwhile, oilfield service company Baker Hughes has reported a slight rebound in US shale rigs. Data released on Friday showed a higher rig count for the second week in a row and a worse-than-expected Chinese economic indicator yesterday added to concerns that demand is set to weaken in the world’s second largest economy.

Market analysts are now forecasting that crude oil prices could fluctuate between US$46 and US$50 per barrel. Goldman Sachs estimates that WTI prices could hit US$45 per barrel in October, while ABN AMRO Bank estimates that Brent crude oil will average around US$65 next year.

Finance Minister Larry Howai had originally pegged the 2014/2015 national budget on an oil price of US$80 but that was adjusted downward to US$45 in response to significant declines in the price of oil. The natural gas price on which the budget is also partly pegged was lowered from US$2.75 per million British Thermal units (mmbtu) to US$2.25 per mmbtu.

Oil prices have been in a free-fall since late last year—a trend that has negatively impacted on this country’s energy-based economy.

The price drop is largely due to the fact that Opec, a cartel of oil producers that includes Saudi Arabia, Iran, Iraq, and Venezuela, is engaged in a price war with oil producers in the United States.

The cartel will let prices keep falling in the hopes that many of the newest drilling projects in the US will prove unprofitable and shut down. However, this is a risky strategy for Opec, as many of its member countries require high oil prices to balance their budgets.

On the natural gas front, the news was more encouraging yesterday as the price of that commodity rose 3.2 cents to close at US$2.748 per mmbtu.

Source:
Trinidad Guardian
Tuesday August 4, 2015

http://www.guardian.co.tt/business/2015-08-04/oil-just-above-tt-budget-peg