Drop in Current Oil Price May Lead to a Repeat of 2008

For this year alone, oil prices are down by over $25 a barrel. This worries analysts in the oil industry as this scenario seems very similar to what occurred in 2008

Four years ago, crude oil prices reached their highest level of about $150 a barrel. But before that year ended, it had dropped by almost $120 to reach $30 a barrel.

So far this 2012, current crude oil prices reached their highest rate at $109.77 last Feb 25 in the NYMEX. By the 20th of June, it has fallen by almost 24%, or $25.74, to close at $84.03 per barrel.

In North Texas, June 20 saw a crude oil price per barrel of $80, a rate that is a little lower by $3.38 compared to the closing price in the NYMEX. Moreover, the price that was posted has also decreased by 24% since the 25th of February.

Oil and gasoline manufacturers in Texas have started to restrict their production activites since April as a result of these current price trends.

There has been a continuous decline in the Baker Hughes Drilling Rig Count, from 926 last June 15 to 918 last week. Similarly, the rig count of the United States last week was lower by 13, from 1,971 last June 15.

In 2008, prices for oil rebounded after its quick fall. However, natural gas prices remain at their historic lows. In July of 2008, it traded at around $13. By June 20, it ended at $2.517 for a 30-day delivery on NYMEX trading.

According to the EIA, there is an over-supply of natural gas and crude oil in stock. These factors, together with the news on the country and world economy, have caused traders of commodity and the oil industry to be afraid of gasoline and crude oil price strength.

The debt problems of Europe, the slowdown of Asia’s economy and the weak performance of America’s economy heavily affected markets of crude oil.

An indicator that keeps on increasing is the production of crude oil. The estimated production level in Texas is almost 41.75 million barrels in the month of April. It is an increase of more than 8.1%, or 3.13 million barrels, compared to the production in the same month last year.

Texas natural gas has been decreasing mostly due to historically low prices. The output of natural gas is lower by 8.5%, or 56.36 billion cubic feet, versus that of 2011.  Price volatility is normal for both producers and consumers of natural gas and oil.

By: Chris Termeer