The global price of crude oil today dived below $60-barrel for the first time in five years with almost no signs producers are ready to tackle a glut.
And crude prices are poised to fall below half where they were six months ago, before producers begin dealing with the global glut.
Brent, the global benchmark, will slide to as low as $50-barrel in 2015, according to the median response in a Bloomberg survey of 17 analysts, down from the $115.71 a barrel high for the year on June 19.
If so, this will choke future investment in new oil field exploration and recovery as major oil companies – such as BP – financially ‘stress-test’ such investments at $80-barrel, below which it is currently uneconomic to recover.
The grade already collapsed 49% since then and needs to fall further before producers clear the current glut, said five out of six respondents who gave a reason. Brent futures sank in the weeks after the Organisation of Petroleum Exporting Countries decided to maintain output – even as the highest US production in three decades swells a global surplus.
OPEC will stand by its decision even if prices fall to $40-barrel, United Arab Emirates Energy Minister Suhail Al-Mazrouei said.
“This won’t stop until oil producers are on their backs,” Bjarne Schieldrop, chief commodities analyst at SEB AB – Sweden’s fourth-biggest bank – said. “There will be better demand in the second half, hopefully some demand effects from lower prices, and definitely softer growth in U.S. shale.”
Brent futures declined $1.69, or 2.8%, to $59.37 a barrel on the London-based ICE Futures Europe exchange at 10:56 a.m. this morning. They had earlier fallen as much as 3.3%.
Spanish energy conglomerate buys ageing Talisman N. Sea oil operations
Meanwhile, Spain’s Repsol has agreed to buy Talisman Energy, Canada’s fifth-largest independent oil producer, for $13 billion – demonstrating how the drop in oil prices is pushing energy companies to take the plunge on big M&A deals.
A near-halving in the oil price since June has lowered price tags on producers like Talisman, spurring renewed interest from Repsol which has long been searching for oil and gas assets in North America and elsewhere.
The two companies held merger talks earlier this year but they broke down last summer because of Talisman’s underperforming North Sea operations, much of which are in a joint venture with China’s Sinopec.
Much of Talisman’s western hemisphere operations were profitable while oil prices were high, but its North Sea operations have weighed on the company because maintenance work on ageing platforms has made production targets unreliable and decommissioning obligations have increased.