Crude Oil Might Fall As Low As $70 On Improved Technology

Crude oil continues its slide to trade at 94.54 down by 7 points while Brent oil gained 33 cents to trade at 106.20. The spread remains below $12 after reaching $13 last week. Heating oil continued to climb in the US as winter weather draws near. Heating oil gained 21 pips this morning to trade at 2.8854 while natural gas continued to look for a bottom, between seasons. Natural gas dropped by 93 points to trade at 3.426 headed towards last year’s bottom of 3.23.

Oil prices continued to fall during last week. WTI decreased by 3.31%; Brent oil, by 0.95%. As a result, the gap of Brent oil over WTI further widened: The premium ranged between $10.81 and $13.09. Last week, the EIA’s weekly update presented a drop in oil’s stockpiles by 5.8 million barrels and the oil market slightly tightened. This week, several reports may affect oil prices. These items include the U.S non-farm payroll report, China’s industrial production, U.S GDP for the third quarter, German factory orders and EIA oil weekly reports.

Oil imports sharply decreased by 2.8% last week. The weekly changes in oil imports have a mid-strong negative correlation (-0.194) that suggests oil price may rise next week. Conversely, oil production slightly rose by 0.2%. Refinery inputs fell by 0.7% last week. In total the demand remained lower than the supply; conversely, the difference has narrowed – this may pull up oil prices as the oil market in the U.S slightly tightened.

As global production and supplies increase with more modern technology allowing increased production oil is likely to continue to fall over the long term.  Key aspects such as technological advancements in oil recovery techniques, the boom in US shale oil production, political stability in oil producing nations and the implications of sustained high oil prices on the dynamics of the supply market were assessed to determine marginal costs and future production limitations.

Demand has been growing at an annual rate of 1.3 per cent over the last decade. Rapid GDP growth after the financial crisis, low regulation in emerging economies and challenges faced by alternative energy sources mean that demand is expected to continue growing. Non-OECD countries are expected to account for a larger share or even all of demand growth in the future, given lower economic growth and higher oil efficiency in OECD countries.

Companies selling cars in the US reported their October sales Friday. Reviewing them, it’s hard not to miss the fact that the deeply-held view that Americans are turning away from bigger cars may be taking a hit from the sliding price of gasoline. In the first week of October 2012, the average nationwide retail conventional gasoline price, according to the Energy Information Administration, was about $3.80. This year, it was $3.36 at the start of the month and it was down 5 cents more by the close. It doesn’t seem like a lot. But going through the car retail sales figures, one can’t help but notice that last month at least, big was in and small increasingly was out. Overall, US vehicle sales in October were up 10.4% from 2012. Those sales from a year ago were presumed to have been depressed by the end-of-month arrival of Superstorm Sandy.