Energy Falls Further on Higher Oil Output

Amidst a declining currency and lower revenue from an oil glut, energy-exporter Russia continues to boost production.

Amidst a declining currency and lower revenue from an oil glut, energy-exporter Russia continues to boost production.

Russian oil output rose 0.3% in December to a record, according to data released by the Energy Ministry of the country. In total, the country produced 10.67 million barrels a day. Oil futures fell in the U.S. and Europe, as Brent futures fell 1.78% and WTI oil futures fell 1.3%. Contracts due in February fell to 52.58 per barrel, a new post-recession low. Despite the decline, natural gas rose 2.15%, but remained below $3 per mm BTU. Gasoline and heating oil prices also fell.

Most economists believe a decline in energy prices will not abate as long as production rises, with little risk from geopolitical unrest or higher demand. In a note from Goldman Sachs, an investment bank, analysts noted that the floor to oil prices could be below many market participants’ expectations.

RBN Energy analyst Rusty Braziel wrote to clients that the price of oil is unlikely to see much of an upward pressure in the medium-term. “$100 a barrel crude oil prices are in the rear view mirror, at least for a couple of years,” Braziel wrote.

The news helped U.S. stocks, which fluctuated in trading from a fall to close near flat. Large-cap stocks saw a slight gain, while volatility in the S&P 500 fell 7.3% after rising briefly in early morning trading.

U.S., Iraqi Production

Despite falling prices and expectations that some oil and gas producers could cut production in 2015 amidst falling prices, the U.S. Energy Information Administration said it expects oil production to continue to grow.

In its Drilling Productivity Report, the EIA said crude oil production expects to rise 8.1% year-over-year in 2015, although that is less than analysts had expected as of one month ago. The analysts acknowledged that margins were being pressured by falling commodity prices, but that it was not enough to cause a slowdown to production overall. There are “less-attractive economic returns in some areas of both emerging and mature oil production regions,” the report said, noting that some regions, particularly North Dakota, may find economic growth pressured by the falling oil prices.

Globally, energy production is not slowing in emerging markets, and large oil exporters have affirmed they will continue to supply oil. Saudi Arabia said in December that it would not cut production, regardless of how much oil the United States produces. Analysts believe Saudi Arabia is fighting to defend its market share, a major shift from previous years when the country focused on controlling prices.

Iraq has also boosted output, reaching the highest point in decades as the country capitalizes on its more stable drilling infrastructure. Venezuela, which faces the highest production costs of the OPEC nations, has also kept productivity high. In its most recent meeting, Venezuela pressured Saudi Arabia to cut output, but the Middle Eastern country did not relent, arguing that the country needs to continue to produce energy regardless of how low the price goes. Some analysts believe that oil prices could fall as low as $40 per barrel in 2015, a result of the sustained global production.