We are nearing the end of 2011 and oil prices are falling. Nymex WTI goes for $93.53 a barrel, and Brent now sells for $104.06. It's been awhile since the Brent price was this low (charts below).
Mouse over the 1 month (1m), 1 quarter (1q), 1 year (1y) and 5 year(5y) controls to see the charts. Don't click on them
The reason given for the price swoon is the European Debt Crisis. The mechanism by which the price is falling is the stronger value of the dollar against other currencies—the dollar index (DXY, chart below).
Europe's financial woes pushed oil prices lower Friday for a third straight day.
The eurozone region continues to wrestle with a mountain of debt, and the only cure at hand appears to be a wave of severe spending cuts and pleas for more international aid. European Union leaders have hammered out a new plan for more central financial control and requirements for balanced budgets, but experts say those measures will do little to reduce current debts.
"That plan was a real bust," independent oil analyst and trader Stephen Schork said. "There's talk of real weakness now."
Spending cuts typically lead to declines in energy consumption. It also means fewer imports of manufactured goods from other countries like China and the U.S. Many experts think that the eurozone is already headed for a recession. Investors remain concerned that widespread bank failures could follow, and it may become increasingly difficult for businesses to raise money as more investors lose confidence in the eurozone economy...
Benchmark [Nymex WTI] crude fell 34 cents to end at $93.53 per barrel in New York. Prices fell as low as $92.52 earlier in the day.
Brent crude, which is used to price foreign oil that's imported by many U.S. refineries, fell 25 cents to finish at $103.35 a barrel in London.
There is no reason to change the alarm level specified in my previous (biweekly) Saturday Oil Report of December 3rd.
Oil Alarm Level — Orange
I am going to cop-out today, for I believe we are at the beginning—more accurately, the end of the beginning—of the next global economic downturn. I believe this slowdown is now being reflected in falling oil prices. I would have to take a close look at Europe, China, the other emerging markets and the U.S. to do this analysis, which is a little more than I am willing to do on a cold Saturday morning in December. For example, look at European oil consumption (left) from Stuart Staniford's Early Warning blog (November 8, 2011). You can see how far down it is since the salad days of 2005-2007.
I will be covering these issues in-depth in the weeks and months ahead. In the near future I expect the global downturn to become even more obvious than it is now, and I expect volatile oil prices (generally speaking) to fall as economic conditions deteriorate.
So that's your take-away message for today. How wide and deep the global slowdown will be is anyone's guess. We'll know more as events unfold.
What will the prices be in two weeks? If the Brent and WTI prices rise, they won't rise much. I expect prices to be about the same or fall further, depending on future events and reports out of Europe and China.
Dave - you and several other bloggers/columnists whose articles get picked up by Energy Bulletin have mentioned the steadily increasing amount of oil used to extract oil, and since oil production (all types) hasn't increased in years now, net energy is obviously decreasing. I know there wouldn't be any official data on this, but have you ever seen, or would it even be possible to come up with, a chart depicting 'Net Energy', or at least a projection of it? I would think something like this would pretty useful
Posted by: Biocentrist | 12/17/2011 at 11:10 AM