Persistent Glut Sinks Crude Price Recovery Hopes
A “glut of gasoline could weigh significantly on oil prices” this summer, Bloomberg reports, as Americans fail to hit the road and burn fuel in anticipated numbers and Asian refineries unload surplus production on world markets.
Global markets are “severely oversupplied” with gasoline, the news agency notes, citing Morgan Stanley analysts, “with stocks at a five-year high serving as a blow to crude prices.” In what it calls a “worrisome trend” for markets, the bank expects refineries that cannot sell their gasoline to curtail all the hydrocarbon products they produce—and correspondingly their purchases of crude oil.
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Bloomberg notes that world crude prices approached three-month lows, amid lingering “high inventories of both crude oil and refined fuels” and a modest uptick in U.S. oil drilling. Prices are down about 20% since their peak in early June.
The continuing price crash made its impact felt in a flurry of quarterly reports from international and Canadian fossil companies.
• Royal Dutch Shell reported a 72% drop in earnings, with quarterly profits off by more than US$1 billion, due to low oil prices combined with high costs from a corporate takeover.
• Exxon’s net income fell $1.7 billion compared to the second quarter last year, and its oil and gas production profits dropped 85%, to $294 million.
• Chevron posted a $1.47-billion loss, its biggest since 2001.
• Calgary-based Cenovus Energy lost C$267 million, despite a concerted campaign to cut capital spending, delay projects, and lay off staff.
Even so, Cenovus and MEG Energy both reported they were considering new investments, “a sign that the industry may have come to grips with the slump in crude prices after two years of heavy cost-cutting,” Reuters reports.
Still, persistent low oil prices prompted Bloomberg to caution “oil bulls: Just as U.S. oil production sinks low enough to drain supplies, demand is about to fall off a cliff.”
The news agency has been bearish on oil’s recovery potential since prices for the commodity plumbed decade lows earlier this year. A February report cited global energy trader Ian Taylor’s prediction that “fundamentally different” market forces will keep benchmark crudes in a price band below US$60 “for five to 10 years.”