Oil price falls as over $150 billion in projects face axe in 2015

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on Dec 5, 2014
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iNVEZZ.com, Friday, December 5: Prices of crude oil futures have extended losses so far in today’s trading session after Saudi Arabia, the world’s biggest oil exporter, offered record discounts on its crude to Asian customers. Reuters has reported that over $150 billion (£96 billion) in oil projects are likely to be put on hold next year as plunging oil prices render them economically unviable.

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Brent futures for January delivery had shed 0.76 percent, or 53 cents, to $69.11 as of 09:27 GMT on the London-based ICE Futures Europe exchange. Futures fell under pressure after state-owned Saudi Aramco, slashed prices for its Asian customers next month according to a company statement.
“It seems what the Saudis want, the Saudis are going to get,” Phil Flynn, a senior market analyst at Price Futures Group in Chicago, said by e-mail as cited by Bloomberg. “We’re going to see prices continue to be under pressure. It is still game on.”
According to Norwegian consultancy Rystad Energy, in 2015 companies will take final investment decision (FIDs) on a total of 800 oil and gas projects worth $500 billion, Reuters has reported. The London-based news agency quoted Per Magnus Nysveen, head of analysis at the Norwegian company, as saying that with forecasts for oil to average $82.50 per barrel next year, around one third of the spending, is unlikely to be approved.
January WTI futures had fallen 0.82 percent, or 55 cents, to $66.26 in electronic trading on the NYMEX in New York as of 09:27 GMT. According to CME Group exchange data reported by the Financial Times, the number of put options to sell US crude at $40 per barrel by December 2015 has quadrupled in the past two weeks to an equivalent of 880,000 barrels. Similar options with a $35 a barrel strike price climbed to 669,000 barrels from none.
“It’s a punt, a shot at the worst-case scenario for the oil price,” said Raymond Carbone, president of broker Paramount Options in New York as cited by the FT. “You’re a genius if you’re right. And if you’re wrong, it won’t ruin your lifestyle.” WTI futures last settled below $40 per barrel in February 2009.
The newspaper also quoted Jan Stuart, global energy economist at Credit Suisse, as saying that potential factors which may drag the oil market towards $35-$40 per barrel include a temperate winter in the northern hemisphere which could reduce demand for heating fuel. High rates of refinery maintenance in the US Gulf of Mexico oil hub, which would temporarily slow demand for crude, may also influence prices.

“It’s no longer terribly far-fetched to see a scenario that could create, briefly, such a low price,” Stuart added. The Swiss bank forecasts WTI at $75 per barrel a year from now.
Based on the two front month contracts, Brent was trading at a premium of $2.85 to WTI as of 09:27 GMT, two cents up from yesterday’s $2.83 close. Last week the premium ended at $4.

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