On Wednesday, the price of West Texas Intermediate, the benchmark for U.S. crude oil, fell 4.3% to $40.80 a barrel, hitting levels not seen since the depths of the financial crisis more than six years ago. Brent crude, the global benchmark, fell to $47 a barrel.
The world is soaked in oil and recent data from the U.S. Energy Information Administration showed that oil stockpiles had unexpectedly climbed some more, this time by 2.6 million barrels last week. Smart money managers like to say that the cure for lower oil prices is lower oil prices, but all indications this summer are that oil producers from Saudi Arabia to the U.S. continue to pump despite lower oil prices.
After rallying for much of the year, the great oil crash that started in the fall of 2014 has returned in the summer of 2015 with a vengeance. When the oil price crash started last year, the talk was about oil supply coming from unconventional U.S. shale oil and the decision by the traditional swing oil producer, Saudi Arabia, not to cut production and stabilize prices. Oil traders focused on oil storage and U.S. rigs counts, and the price per barrel of oil increased in the first half of 2015 as oil stockpiles and operational rigs declined.
But in the summer of 2015 the oil story also includes issues related to demand, particularly connected to concerns about China, where the government seems to be taking aggressive measures like weakening its currency to rekindle a slowing economy. The U.S. economy is not exactly roaring.
Oil’s drop has taken a bit of the swagger out of the U.S. shale energy producers that have driven the big change in global oil market. U.S. oil tycoon T. Boone Pickens had predicted $70 oil by the end of the year, but that seems increasingly unlikely. One example: Shares of Continental Resources, a big U.S. unconventional oil driller, fell by 6.4% on Wednesday and are now down by 58% in the last year. But the U.S. frackers are still drilling. The U.S. rig count has increased for the last four straight weeks, according to recent data from Baker Hughes.
At the same time, Saudi Arabia just announced that it is pumping more oil than ever before. The oil kingdom has spent tens of billions of dollars of its foreign reserves to back its strategy of protecting market share, trying to force other oil producers to cut back on production. But U.S. shale energy producers have proven more resilient and productive than some had expected. Without more robust global economic growth, oil traders seem to be betting against the Saudi strategy working.
